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PROMISSORY NOTE
$1,000,000.00 June 1, 2007
PROMISE TO PAY. Sovereign Exploration
Associate International, Inc. ("Company") promises to pay to Harry
Silverman the holder hereof ("Holder"), in lawful money of the
United States of America, the principal amount of ONE MILLION AND
No/100 DOLLARS ($1,000,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance.
Interest shall be calculated from the date hereof until repayment
of the principal amount.
PAYMENT. Company will pay this Note in
one payment of all outstanding principal plus all accrued unpaid
interest on or before the six month anniversary of the Closing Date
unless Holder agrees to extend this Note, in which case the Note
shall become a demand note, payable upon demand or at such later
date as specified by Holder to Company in writing, in Holder's sole
discretion. Unless otherwise agreed or required by applicable law,
payments will be applied first to any accrued unpaid interest; then
to principal; then to any late charges; and then to any unpaid
collection costs. The annual interest rate for this Note is
computed on a 365 days per year basis. Company will pay Holder at
Holder's address or at such other place as Holder may designate in
writing.
INTEREST RATE. The interest rate on this
Note is six percent (6%) per annum calculated on the principal
amount of the Note then outstanding.
PREPAYMENT . Company may make a
prepayment, in whole or in part, of this Note without the prior
consent of Holder with no prepayment penalty.
ISSUANCE OF
WARRANTS At the Maturity Date of the Note, the Holder shall be
entitled to purchase 250,000 shares of common stock of the Company
at a price of $.20 per share. The Holder will also be entitled to
purchase an additional 250,000 shares of common stock of the
Company at the closing price of the Company stock as reported on
the OTCBB on the Closing Date and, in addition,, these shares must
be exercised within one year from the Closing Date.
Conversion Right . The outstanding
principal and interest owed on this Note shall be convertible on
the Maturity Date, at the option of the Holder, into fully paid and
non-assessable shares of Common Stock of the Company, as such
Common Stock exists on the Issue Date, or any shares of capital
stock or other securities of the Company into which such Common
Stock shall hereafter be changed or reclassified at the conversion
price (the " Conversion Price ") determined as provided
herein (a " Conversion "); 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 delivered by the Holder to
the Company then in the form attached hereto as Exhibit A (the "
Notice of Conversion "), delivered in accordance with
Section 1.4 below; provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, notice) to the Company before
6:00 p.m., New York, New York time on such conversion date (the "
Conversion Date "). The term " Conversion Amount "
means, with respect to any conversion of this Note, the sum of (1)
the principal amount of this Note to be converted in such
conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Note
to the Conversion Date
Conversion Price . Calculation of Conversion
Price . The Conversion Price shall be the Variable Conversion
Price (as defined herein) (subject to equitable adjustments as
reflected by intraday reporting price reporting by OTCBB). The "
Variable Conversion Price " shall
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