LEVIATHAN MINERALS GROUP INCORPORATED SENIOR SECURED CONVERTIBLE PROMISSORY NOTE $_____________Minneapolis, MinnesotaAugust 22, 2011

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER SUCH ACT AND APPLICABLE LAWS OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS AND AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

LEVIATHAN MINERALS GROUP INCORPORATED, a Delaware corporation (the “Company”), for value received hereby promises to pay to _________, or registered assigns (the “Holder”), the sum of ______________, or such other amount as shall then equal the outstanding principal amount hereof and all accrued interest, as set forth below, on the earlier to occur of (i) February 22, 2013 (eighteen months from the date of this Note), or (ii) when declared due and payable by the Holder upon the occurrence of an Event of Default (as defined below).  Payment for all amounts due hereunder shall be made by wire transfer of immediately available funds, in lawful tender of the United States, to an account designated in writing by the Holder. This Note is issued pursuant to that certain Securities Purchase Agreement by and among the Company and the Investors described therein, dated as of the date hereof, as the same may from time to time be amended, modified or supplemented (the “Purchase Agreement”). The Holder of this Note is subject to certain restrictions set forth in the Purchase Agreement and shall be entitled to certain rights and privileges set forth in the Purchase Agreement.  This Note is one of the Convertible Promissory Notes referred to as the “Convertible Promissory Notes” in the Purchase Agreement.  Capitalized terms used but not defined herein have the meanings ascribed to them in the Purchase Agreement.

 

The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees:

 

1. Definitions.  As used in this Note, the following terms, unless the context otherwise requires, have the following meanings:

 

(i) “Business Day” means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

(ii) “Common Stock” means the common stock of the Company.

 

 

(iii) “Company” shall include any corporation that, to the extent permitted by this Note or the Purchase Agreement, shall succeed to or assume the obligations of the Company under this Note.

 

(iv) “Conversion Shares” means shares of Common Stock into which this Note is converted pursuant to Section 5.1 or 5.2 hereof.

 

(v) “Holder,” when the context refers to a holder of this Note, shall mean any person who shall at the time be the registered holder of this Note.

 

(vi) “Permitted Indebtedness” has the meaning provided in the Security Agreement.

 

(vii) “Permitted Liens” has the meaning provided in the Security Agreement.

2. Interest.  Until all outstanding principal and interest on this Note shall have been paid (or converted into shares of Common Stock) in full, simple interest on the unpaid principal balance of this Note shall accrue from the date hereof at the rate of ten percent (10%) per annum (the “Initial Interest Rate”).  Interest shall be due and payable in cash upon each anniversary of the issue date of this Note, except as otherwise provided in Section 3 hereof.  Upon the occurrence and during the continuation of an Event of Default that results in the eventual acceleration of this Note, the Initial Interest Rate shall be increased to fourteen percent (14%) per annum.

3. Events of Default.  If any of the events specified in this Section 3 shall occur (herein individually referred to as an “Event of Default”), the Holder of the Note may, so long as such condition exists, declare the entire principal and unpaid accrued interest hereon immediately due and payable, by notice in writing to the Company:

 

(i) the entry of any judgment or order against the Company for the payment of money in an aggregate amount in excess of $50,000 (to the extent not covered by insurance), if the same is not satisfied or enforcement proceedings are not stayed within 60 days or if, within 60 days after the expiration of any such stay, the judgment or order is not dismissed, discharged or satisfied; or

 

(ii) The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the filing by it of a petition seeking reorganization or release under the bankruptcy laws of any jurisdiction applicable to the Company, or the consent by it to 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 an assignment for the benefit of creditors,; or

 

(iii) If, within sixty (60) days after the commencement of an action against the Company seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future applicable statute, law or regulation, such action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside; or

 

 

 

(iv) If, within sixty (60) days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated; or

 

(v) The conveyance of any or all of the Company’s assets to a trustee, mortgagee or liquidating agent or assignment for the benefit of creditors.

 

4. Prepayment. This Note may not be prepaid without the express written consent of the Holder.

 

5. Conversion.

 

5.1 Automatic Conversion.  Immediately upon the effective date of the listing of the Common Stock on any of the Nasdaq stock markets, the NYSE, or the NYSE Amex, the entire outstanding principal amount and all accrued unpaid interest of this Note shall be automatically converted, in accordance with the provisions of Section 5.3.1 hereof, into the number of shares of Common Stock determined by dividing the aggregate principal amount and all accrued unpaid interest thereon by $4.25, subject to adjustment as provided herein (such price being referred to herein as the “Conversion Price”).

 

5.2 Voluntary Conversion.  The Holder of this Note has the right, at the Holder’s option, at any time prior to conversion pursuant to Section 5.1 or payment in full of the principal balance and all accrued interest of this Note, to convert this Note, in accordance with the provisions of Section 5.3.2 hereof, in whole or in part, into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock into which this Note may be converted pursuant to this Section 5.2 shall be determined by dividing the aggregate principal amount together with all accrued unpaid interest on the date of conversion by the Conversion Price.

 

5.3 Conversion Procedure.

 

5.3.1 Notice of Conversion Pursuant to Section 5.1.  If this Note is automatically converted pursuant to Section 5.1, written notice shall be delivered to the Holder of this Note at the address last shown on the records of the Company for the Holder or given by the Holder to the Company for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Company is located, notifying the Holder of the conversion to be effected, specifying the Conversion Price, the principal amount of the Note to be converted, the date on which such conversion will occur and calling upon such Holder to surrender to the Company, in the manner and at the place designated, this Note.  At its expense, the Company shall deliver to the Holder the applicable Conversion Shares in certificate form (bearing such legends as are required by the Purchase Agreement and applicable state and federal securities laws in the opinion of counsel to the Company) or, if permissible in the opinion of counsel to the Company, electronically through the Depository Trust Company or another established clearing corporation performing similar functions, in either case within five (5) Business Days following the Company’s receipt of this Note surrendered by the Holder.

 

 

 

5.3.2 Notice of Conversion Pursuant to Section 5.2.  Before the Holder shall be entitled to convert this Note into shares of Common Stock pursuant to Section 5.2, it shall surrender this Note at the office of the Company and shall give written notice, in the form of the Notice of Conversion attached hereto, to the Company of the election to convert the same pursuant to Section 5.2, and shall state therein the name or names in which the shares of Common Stock are to be issued. At its expense, the Company shall deliver to the Holder the applicable number of Conversion Shares in certificate form (bearing such legends as are required by the Purchase Agreement and applicable state and federal securities laws in the opinion of counsel to the Company) or, if permissible in the opinion of counsel to the Company, electronically through the Depository Trust Company or another established clearing corporation performing similar functions, within five (5) Business Days following its receipt of such notice and surrendered Note.  Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of this Note, and the person or persons entitled to receive the applicable Conversion Shares shall be treated for all purposes as the record holder or holders of such Conversion Shares as of such date.

 

5.4 No Fractional Shares.  No fractional shares of Common Stock shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to the Holder upon the conversion of this Note, the number of shares issued upon the conversion of this Note shall be rounded up to the nearest whole share

 

5.5 Split, Subdivision or Combination of Shares.  If the Company at any time while this Note remains outstanding and unpaid shall split, subdivide or combine the Company’s Common Stock, into a different number of securities of the same class, the Conversion Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination and the number of such securities shall be proportionately increased in the case of a split or subdivision or proportionately decreased in the case of a combination.

 

6. Negative Covenants.  As long as any portion of this Note remains outstanding, unless the Majority Investors shall otherwise consent in writing, the Company shall not, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens or encumbrances of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;