EXHIBIT A

 

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: February ___, 2008

Original Conversion Price (subject to adjustment herein): $____

$_______________

 

10% CONVERTIBLE DEBENTURE

DUE JUNE___, 2009

THIS DEBENTURE is one of a series of duly authorized and validly issued 10%
Convertible Debentures of Aurelio Resources Corporation, a Nevada corporation,
(the "Company"), having its principal place of business at 5554 South Prince
Street, Suite #200

Littleton, CO 80120, designated as its 10% Convertible Debenture due June ___,
2009 (this debenture, the "Debenture" and, collectively with the other
debentures of such series, the "Debentures").

FOR VALUE RECEIVED, the Company promises to pay to ________________________ or
its registered assigns (the "Holder"), or shall have paid pursuant to the terms
hereunder, the principal sum of $_______________ on June ___, 2009 (the
"Maturity Date") or such earlier date as this Debenture is required or permitted
to be repaid as provided hereunder, and to pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions:

Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined
herein shall have the meanings set forth in the Purchase Agreement and (b) the
following terms shall have the following meanings:

"Alternate Consideration" shall have the meaning set forth in Section 5(e).

"Bankruptcy Event" means any of the following events: (a) the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X) thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any Significant Subsidiary thereof; (b) there is commenced against
the Company or any Significant Subsidiary thereof any such case or proceeding
that is not dismissed within 90 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order
of relief or other order approving any such case or proceeding is entered; (d)
the Company or any Significant Subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such appointment; (e) the
Company or any Significant Subsidiary thereof makes a general assignment for the
benefit of creditors; (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the foregoing.

"Base Conversion Price" shall have the meaning set forth in Section 5(b).

"Business Day" means any day except any Saturday, any 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.

"Buy-In" shall have the meaning set forth in Section 4(d)(v).

"Change of Control Transaction" means the occurrence after the date hereof of
any of (i) an acquisition after the date hereof by an individual or legal entity
or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)
of effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company (other than by means of conversion or exercise
of the Debentures and the Securities issued together with the Debentures), or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving effect to
such transaction, the stockholders of the Company immediately prior to such
transaction own less than 66% of the aggregate voting power of the Company or
the successor entity of such transaction, or (iii) the Company sells or
transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less than
66% of the aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement (not including voluntary retirement or
voluntary resignation) at one time or within a three year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), or (v) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for any of
the events set forth in clauses (i) through (iv) above.

"Conversion Date" shall have the meaning set forth in Section 4(a).

"Conversion Price" shall have the meaning set forth in Section 4(b).

"Conversion Shares" means, collectively, the shares of Common Stock issuable
upon conversion of this Debenture in accordance with the terms hereof.

"Debenture Register" shall have the meaning set forth in Section 2(c).

"Dilutive Issuance" shall have the meaning set forth in Section 5(b).

"Dilutive Issuance Notice" shall have the meaning set forth in Section 5(b).

"Effectiveness Period" shall have the meaning set forth in the Registration
Rights Agreement.

"Equity Conditions" means, during the period in question, (i) the Company shall
have duly honored all conversions and redemptions scheduled to occur or
occurring by virtue of one or more Notices of Conversion of the Holder, if any,
(ii) the Company shall have paid all liquidated damages and other amounts owing
to the Holder in respect of this Debenture, (iii)(a) there is an effective
Conversion Shares Registration Statement pursuant to which the Holders are
permitted to utilize the prospectus thereunder to resell all of the shares of
Common Stock issuable pursuant to the Transaction Documents (and the Corporation
believes, in good faith, that such effectiveness will continue uninterrupted for
the foreseeable future) or (b) all of the Conversion Shares issuable pursuant to
the Transaction Documents may be resold pursuant to Rule 144 without volume or
manner-of-sale restrictions as determined by the counsel to the Company pursuant
to a written opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the affected Holders, (iv) the Common Stock is trading on a
Trading Market and all of the shares issuable pursuant to the Transaction
Documents, when issued, are listed or quoted for trading on such Trading Market
(and the Company believes, in good faith, that trading of the Common Stock on a
Trading Market will continue uninterrupted for the foreseeable future), (v)
there is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable pursuant
to the Transaction Documents, (vi) there is no existing Event of Default or, to
the Company's knowledge, no existing event which, with the passage of time or
the giving of notice, would constitute an Event of Default, (vii) the issuance
of the shares in question (or, in the case of a Monthly Redemption, the shares
issuable upon conversion in full of the Monthly Redemption Amount) to the Holder
would not violate the limitations set forth in Section 4(c) herein, (viii) there
has been no public announcement of a pending or proposed Fundamental Transaction
or Change of Control Transaction that has not been consummated, and (ix) the
Holder is not in possession of any information provided by the Company that
constitutes, or may constitute, material non-public information.

"Event of Default" shall have the meaning set forth in Section 8.

"Fundamental Transaction" shall have the meaning set forth in Section 5(e).

"Interest Conversion Rate" means the lesser of (a) the Conversion Price or (b)
90% of the lesser of (i) the average of the VWAPs for the 20 consecutive Trading
Days ending on the Trading Day that is immediately prior to the applicable
Interest Payment Date or (ii) the average of the VWAPs for the 20 consecutive
Trading Days ending on the Trading Day that is immediately prior to the date the
applicable Interest Conversion Shares are issued and delivered if such delivery
is after the Interest Payment Date.

"Interest Conversion Shares" shall have the meaning set forth in Section 2(a).

"Interest Notice Period" shall have the meaning set forth in Section 2(a).

"Interest Payment Date" shall have the meaning set forth in Section 2(a).

"Interest Share Amount" shall have the meaning set forth in Section 2(a).

"Late Fees" shall have the meaning set forth in Section 2(d).

"Mandatory Default Amount" means the sum of (i) the greater of (A) 130% of the
outstanding principal amount of this Debenture, plus 100% of accrued and unpaid
interest hereon, or (B) the outstanding principal amount of this Debenture, plus
all accrued and unpaid interest hereon, divided by the Conversion Price on the
date the Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower Conversion Price, multiplied by the VWAP on the date the
Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in
full, whichever has a higher VWAP, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of this Debenture.

"Monthly Conversion Period" shall have the meaning set forth in Section 6(b)
hereof.

"Monthly Conversion Price" shall have the meaning set forth in Section 6(b)
hereof.

"Monthly Redemption" means the redemption of this Debenture pursuant to Section
6(b) hereof.

"Monthly Redemption Amount" means, as to a Monthly Redemption, $______, plus
accrued but unpaid interest, liquidated damages and any other amounts then owing
to the Holder in respect of this Debenture.

"Monthly Redemption Date" means the last day of each month, commencing
immediately upon the earlier of (a) the first such date immediately following
the Effective Date and (b) August 30, 2008, and terminating upon the full
redemption of this Debenture.

"Monthly Redemption Notice" shall have the meaning set forth in Section 6(b)
hereof.

"New York Courts" shall have the meaning set forth in Section 9(d).

"Notice of Conversion" shall have the meaning set forth in Section 4(a).

"Optional Redemption" shall have the meaning set forth in Section 6(a).

"Optional Redemption Amount" means the sum of (i) 110% of the then outstanding
principal amount of the Debenture, (ii) accrued but unpaid interest and (iii)
all liquidated damages and other amounts due in respect of the Debenture.

"Optional Redemption Date" shall have the meaning set forth in Section 6(a).

"Optional Redemption Notice" shall have the meaning set forth in Section 6(a).

"Optional Redemption Notice Date" shall have the meaning set forth in Section
6(a).

 

"Original Issue Date" means the date of the first issuance of the Debentures,
regardless of any transfers of any Debenture and regardless of the number of
instruments which may be issued to evidence such Debentures.

"Permitted Indebtedness" means (a) the indebtedness evidenced by the Debentures,
(b) the Indebtedness existing on the Original Issue Date and set forth on
Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease obligations and
purchase money indebtedness of up to $10,000,000, in the aggregate, incurred in
connection with the acquisition of capital assets and lease obligations with
respect to newly acquired or leased assets; (d) any lease or lease purchase
obligations entered into to acquire real property; and (e) non-equity linked
indebtedness owed to a nationally recognized federal or state chartered bank
under a credit facility.

"Permitted Lien" means the individual and collective reference to the following:
(a) Liens for taxes, assessments and other governmental charges or levies not
yet due or Liens for taxes, assessments and other governmental charges or levies
being contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Company) have been
established in accordance with GAAP; (b) Liens imposed by law which were
incurred in the ordinary course of the Company's business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and other
similar Liens arising in the ordinary course of the Company's business, and
which (x) do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the
operation of the business of the Company and its consolidated Subsidiaries or
(y) are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing for the foreseeable future the
forfeiture or sale of the property or asset subject to such Lien; (c) Liens
incurred in connection with Permitted Indebtedness under clauses (a), (b), , (d)
and (e) thereunder; and (d) Liens incurred in connection with Permitted
Indebtedness under clause (c) thereunder, provided that such Liens are not
secured by assets of the Company or its Subsidiaries other than the assets so
acquired or leased.

"Purchase Agreement" means the Securities Purchase Agreement, dated as of
February __, 2008 among the Company and the original Holders, as amended,
modified or supplemented from time to time in accordance with its terms.

"Registration Rights Agreement" means the Registration Rights Agreement, dated
as of the date of the Purchase Agreement, among the Company and the original
Holders, as amended, modified or supplemented from time to time in accordance
with its terms.

"Registration Statement" means a registration statement that registers the
resale of all Conversion Shares and Interest Conversion Shares of the Holder,
names the Holder as a "selling stockholder" therein, and meets the requirements
of the Registration Rights Agreement.

"Securities Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

"Share Delivery Date" shall have the meaning set forth in Section 4(d).

"Subsidiary" shall have the meaning set forth in the Purchase Agreement.

"Trading Day" means a day on which the New York Stock Exchange is open for
business.

"Trading Market" means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American
Stock Exchange, the TSX or TSXV, the Nasdaq Capital Market, the Nasdaq Global
Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC
Bulletin Board.

"Transaction Documents" shall have the meaning set forth in the Purchase
Agreement.

"VWAP" means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market other than the OTC Bulletin Board, the daily volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted for
trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)); (b)  if the Common
Stock is then listed or quoted only on the OTC Bulletin Board , the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.

Section 2. Interest.

Payment of Interest in Cash or Kind

. The Company shall pay interest to the Holder on the aggregate unconverted and
then outstanding principal amount of this Debenture at the rate of 10% per
annum, payable quarterly on February 1, May 1, August1 and November 1, beginning
on the first such date after the Original Issue Date, on each Monthly Redemption
Date (as to that principal amount then being redeemed), on each Conversion Date
(as to that principal amount then being converted), and on the Maturity Date
(each such date, an "
Interest Payment Date
") (if any Interest Payment Date is not a Business Day, then the applicable
payment shall be due on the next succeeding Business Day), in cash or, at the
Company's option, in duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock at the Interest Conversion Rate (the
dollar amount to be paid in shares, the "
Interest Share Amount
") or a combination thereof;
provided
,
however
, that payment in shares of Common Stock may only occur if (i) all of the Equity
Conditions have been met (unless waived by the Holder in writing) during the 20
Trading Days immediately prior to the applicable Interest Payment Date (the "
Interest Notice Period
") and through and including the date such shares of Common Stock are actually
issued to the Holder (provided, that commencing 6 months after the original
Issue Date if Equity Condition (iii) (b) has not been met as a result of Company
Counsel not supplying the necessary legal opinion, the Company may nevertheless
issue shares of Common Stock to pay the Interest Share Amount and the Holder may
provide the Transfer Agent its own legal opinion regarding the tradeability of
such Common Stock under Rule 144, which the Company shall be unconditionally
obligated to accept), (ii) the Company shall have given the Holder notice in
accordance with the notice requirements set forth below, including notice as to
whether the Holder must supply its own Rule 144 legal opinion, and (iii) as to
such Interest Payment Date, prior to such Interest Notice Period (but not more
than five (5) Trading Days prior to the commencement of such Interest Notice
Period), the Company shall have delivered to the Holder's account with The
Depository Trust Company a number of shares of Common Stock to be applied
against such Interest Share Amount equal to the quotient of (x) the applicable
Interest Share Amount divided by (y) the then Conversion Price (the "
Interest Conversion Shares
").

Company's Election to Pay Interest in Kind

. Subject to the terms and conditions herein, the decision whether to pay
interest hereunder in cash, shares of Common Stock or a combination thereof
shall be at the sole discretion of the Company. Prior to the commencement of any
Interest Notice Period, the Company shall deliver to the Holder a written notice
of its election to pay interest hereunder on the applicable Interest Payment
Date either in cash, shares of Common Stock or a combination thereof and the
Interest Share Amount as to the applicable Interest Payment Date, provided that
the Company may indicate in such notice that the election contained in such
notice shall apply to future Interest Payment Dates until revised by a
subsequent notice. During any Interest Notice Period, the Company's election
(whether specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the aforementioned
conditions, failure to timely deliver such written notice to the Holder shall be
deemed an election by the Company to pay the interest on such Interest Payment
Date in cash. At any time the Company delivers a notice to the Holder of its
election to pay the interest in shares of Common Stock, unless the Interest
Conversion Shares may be immediately resold without volume or manner of sale
limitations under Rule 144, the Company shall timely file a prospectus
supplement pursuant to Rule 424 disclosing such election. The aggregate number
of shares of Common Stock otherwise issuable to the Holder on an Interest
Payment Date shall be reduced by the number of Interest Conversion Shares
previously issued to the Holder in connection with such Interest Payment Date.

Interest Calculations

. Interest shall be calculated on the basis of a 360-day year, consisting of
twelve 30 calendar day periods, and shall accrue daily commencing on the
Original Issue Date until payment in full of the outstanding principal, together
with all accrued and unpaid interest, liquidated damages and other amounts which
may become due hereunder, has been made. Payment of interest in shares of Common
Stock (other than the Interest Conversion Shares issued prior to an Interest
Notice Period) shall otherwise occur pursuant to Section 4(d)(ii) herein and,
solely for purposes of the payment of interest in shares, the Interest Payment
Date shall be deemed the Conversion Date. Interest shall cease to accrue with
respect to any principal amount converted, on the date that the Company actually
delivers the Conversion Shares. Interest hereunder will be paid to the Person in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the "
Debenture Register
"). Except as otherwise provided herein, if at any time the Company pays
interest partially in cash and partially in shares of Common Stock to the
holders of the Debentures, then such payment of cash shall be distributed
ratably among the holders of the then-outstanding Debentures based on their (or
their predecessor's) initial purchases of Debentures pursuant to the Purchase
Agreement.

Late Fee

. All overdue accrued and unpaid interest to be paid hereunder shall entail a
late fee at an interest rate equal to the lesser of 18% per annum or the maximum
rate permitted by applicable law ("
Late Fees
") which shall accrue daily from the date such interest is due hereunder through
and including the date of actual payment in full. Notwithstanding anything to
the contrary contained herein, if, on any Interest Payment Date the Company has
elected to pay accrued interest in the form of Common Stock but the Company is
not permitted to pay accrued interest in Common Stock because it fails to
satisfy the conditions for payment in Common Stock set forth in Section 2(a)
herein, then, at the option of the Holder,

the Company, in lieu of delivering
either
shares of Common Stock pursuant to this Section 2
or paying the regularly scheduled interest payment in cash, shall deliver,
within three (3) Trading Days of each applicable Interest Payment Date, an
amount in cash equal to the product of (x) the number of shares of Common Stock
otherwise deliverable to the Holder in connection with the payment of interest
due on such Interest Payment Date multiplied by (y) the highest VWAP during the
period commencing on the Interest Payment Date and ending on the Trading Day
prior to the date such payment is actually made. If any Interest Conversion
Shares are issued to the Holder in connection with an Interest Payment Date and
are not applied against an Interest Share Amount, then the Holder shall promptly
return such excess shares to the Company.

Prepayment

. Except as set forth in Ssection 6(a) of this Debenture, the Company may not
prepay any portion of the principal amount of this Debenture without the prior
written consent of the Holder.

Section 3.

Registration of Transfers and Exchanges.

Different Denominations

. This Debenture is exchangeable for an equal aggregate principal amount of
Debentures of different authorized denominations, as requested by the Holder
surrendering the same. No service charge will be payable for such registration
of exchange.

Investment Representations

. This Debenture has been issued subject to certain investment representations
of the original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase Agreement and
applicable federal and state securities laws and regulations.

Reliance on Debenture Register

. Prior to due presentment for transfer to the Company of this Debenture, the
Company and any agent of the Company may treat the Person in whose name this
Debenture is duly registered on the Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture is overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.

Section 4.

Conversion.

Voluntary Conversion

. At any time after the Original Issue Date until this Debenture is no longer
outstanding, this Debenture shall be convertible, in whole or in part, into
shares of Common Stock at the option of the Holder, at any time and from time to
time (subject to the conversion limitations set forth in Section 4(c) hereof).
The Holder shall effect conversions by delivering to the Company a Notice of
Conversion, the form of which is attached hereto as
Annex A
(a "
Notice of Conversion
"), specifying therein the principal amount of this Debenture to be converted
and the date on which such conversion shall be effected (such date, the "
Conversion Date
"). If no Conversion Date is specified in a Notice of Conversion, the Conversion
Date shall be the date that such Notice of Conversion is deemed delivered
hereunder. To effect conversions hereunder, the Holder shall not be required to
physically surrender this Debenture to the Company unless the entire principal
amount of this Debenture, plus all accrued and unpaid interest thereon, has been
so converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to the
applicable conversion. The Holder and the Company shall maintain records showing
the principal amount(s) converted and the date of such conversion(s). The
Company may deliver an objection to any Notice of Conversion within 1 Business
Day of delivery of such Notice of Conversion. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and determinative in
the absence of manifest error.
The Holder, and any assignee by acceptance of this Debenture, acknowledge and
agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted principal amount of
this Debenture may be less than the amount stated on the face hereof.

Conversion Price

. The conversion price in effect on any Conversion Date shall be equal to
$____,
subject to adjustment herein (the "
Conversion Price
").

Conversion Limitations

. The Company shall not effect any conversion of this Debenture, and a Holder
shall not have the right to convert any portion of this Debenture, to the extent
that after giving effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder's Affiliates, and any other
person or entity acting as a group together with the Holder or any of the
Holder's Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below).  For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates shall include the number of shares of Common Stock issuable
upon conversion of this Debenture with respect to which such determination is
being made, but shall exclude the number of shares of Common Stock which are
issuable upon (A) conversion of the remaining, unconverted principal amount of
this Debenture beneficially owned by the Holder or any of its Affiliates, and
(B) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company subject to a limitation on conversion or
exercise analogous to the limitation contained herein (including, without
limitation, any other Debentures or the Warrants) beneficially owned by the
Holder or any of its Affiliates.  Except as set forth in the preceding sentence,
for purposes of this Section 4(c), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. To the extent that the limitation contained in this
Section 4(c) applies, the determination of whether this Debenture is convertible
(in relation to other securities owned by the Holder together with any
Affiliates) and of which principal amount of this Debenture is convertible shall
be in the sole discretion of the Holder, and the submission of a Notice of
Conversion shall be deemed to be the Holder's determination of whether this
Debenture may be converted (in relation to other securities owned by the Holder
together with any Affiliates) and which principal amount of this Debenture is
convertible, in each case subject to the Beneficial Ownership Limitation. To
ensure compliance with this restriction, the Holder will be deemed to represent
to the Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the
Company shall have no obligation to verify or confirm the accuracy of such
determination.
In addition, a determination as to any group status as contemplated above shall
be determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder.
For purposes of this Section 4(c), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as stated in the most recent of the following: (A) the Company's
most recent periodic or annual report, as the case may be; (B) a more recent
public announcement by the Company; or (C) a more recent notice by the Company
or the Company's transfer agent setting forth the number of shares of Common
Stock outstanding.  Upon the written or oral request of a Holder, the Company
shall within two Trading Days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding.  In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this
Debenture, by the Holder or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The "
Beneficial Ownership Limitation
" shall be 4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock
issuable upon conversion of this Debenture held by the Holder. The Holder, upon
not less than 61 days' prior notice to the Company, may increase or decrease the
Beneficial Ownership Limitation provisions of this Section 4(c), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon conversion of this Debenture held by the
Holder and the provisions of this Section 4(c) shall continue to apply. Any such
increase or decrease will not be effective until the 61
st
day after such notice is delivered to the Company.

The provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 4(c) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Debenture.

Mechanics of Conversion

.

Conversion Shares Issuable Upon Conversion of Principal Amount

. The number of Conversion Shares issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion Price.

Delivery of Certificate Upon Conversion

. Not later than three Trading Days after each Conversion Date (the "
Share Delivery Date
"), the Company shall deliver, or cause to be delivered, to the Holder (A) a
certificate or certificates representing the Conversion Shares which, on or
after the Effective Date, shall be free of restrictive legends and trading
restrictions (other than those which may then be required by the Purchase
Agreement or by applicable law) representing the number of Conversion Shares
being acquired upon the conversion of this Debenture (including, if the Company
has given continuous notice pursuant to Section 2(b) for payment of interest in
shares of Common Stock at least 20 Trading Days prior to the date on which the
Conversion Notice is delivered to the Company, shares of Common Stock
representing the payment of accrued interest otherwise determined pursuant to
Section 2(a) but assuming that the Interest Notice Period is the 20 Trading Days
period immediately prior to the date on which the Conversion Notice is delivered
to the Company and excluding for such issuance the condition that the Company
deliver Interest Conversion Shares as to such interest payment) and (B) a bank
check in the amount of accrued and unpaid interest (if the Company has elected
or is required to pay accrued interest in cash). On or after the Effective Date,
the Company shall use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section 4
electronically through the Depository Trust Company or another established
clearing corporation performing similar functions.

Failure to Deliver Certificates

. If in the case of any Notice of Conversion such certificate or certificates
are not delivered to or as directed by the applicable Holder by the fourth
Trading Day after the Conversion Date, the Holder shall be entitled to elect by
written notice to the Company at any time on or before its receipt of such
certificate or certificates, to rescind such Conversion, in which event the
Company shall promptly return to the Holder any original Debenture delivered to
the Company and the Holder shall promptly return to the Company the Common Stock
certificates representing the principal amount of this Debenture unsuccessfully
tendered for conversion to the Company.

Obligation Absolute; Partial Liquidated Damages

. The Company's obligations to issue and deliver the Conversion Shares upon
conversion of this Debenture in accordance with the terms hereof are absolute
and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares;
provided
,
however
, that such delivery shall not operate as a waiver by the Company of any such
action the Company may have against the Holder. In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or anyone associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from a
court, on notice to Holder, restraining and or enjoining conversion of all or
part of this Debenture shall have been sought and obtained,. In the absence of
such injunction, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion. If the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to Section
4(d)(ii) by the third Trading Day after the Conversion Date, the Company shall
pay to the Holder, in cash, as liquidated damages and not as a penalty, for each
$1,000 of principal amount being converted, $5 per Trading Day (increasing to
$10 per Trading Day on the fifth (5
th
) Trading Day after such liquidated damages begin to accrue) for each Trading
Day after such fifth (5
th
)Trading Day until such certificates are delivered. Nothing herein shall limit a
Holder's right to pursue actual damages or declare an Event of Default pursuant
to Section 8 hereof for the Company's failure to deliver Conversion Shares
within the period specified herein and the Holder shall have the right to pursue
all remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.

Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion

. In addition to any other rights available to the Holder, if the Company fails
for any reason to deliver to the Holder such certificate or certificates by the
Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
Delivery Date the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise), or the Holder's brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Conversion Shares which the Holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a "
Buy-In
"), then the Company shall (A) pay in cash to the Holder (in addition to any
other remedies available to or elected by the Holder) the amount by which (x)
the Holder's total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that the Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue (if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied with
its delivery requirements under Section 4(d)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Debenture with respect to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In
and, upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock upon
conversion of this Debenture as required pursuant to the terms hereof.

Reservation of Shares Issuable Upon Conversion

. The Company covenants that it will at all times reserve and keep available out
of its authorized and unissued shares of Common Stock for the sole purpose of
issuance upon conversion of this Debenture and payment of interest on this
Debenture, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of Persons other than the Holder (and the
other holders of the Debentures), not less than such aggregate number of shares
of the Common Stock as shall (subject to the terms and conditions set forth in
the Purchase Agreement) be issuable (taking into account the adjustments of
Section 5) upon the conversion of the outstanding principal amount of this
Debenture and payment of interest hereunder. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable and, if the
Registration Statement is then effective under the Securities Act, shall be
registered for public sale in accordance with such Registration Statement.

Fractional Shares

. No fractional shares or scrip representing fractional shares shall be issued
upon the conversion of this Debenture. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such conversion, the Company
shall at its election, either pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Conversion Price
or round up to the next whole share.

Transfer Taxes

. The issuance of certificates for shares of the Common Stock on conversion of
this Debenture shall be made without charge to the Holder hereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificates, provided that, the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of this Debenture and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.

Section 5

. Certain Adjustments.

Stock Dividends and Stock Splits

. If the Company, at any time while this Debenture is outstanding: (A) pays a
stock dividend or otherwise makes a distribution or distributions payable in
shares of Common Stock on shares of Common Stock or any Common Stock Equivalents
(which, for avoidance of doubt, shall not include any shares of Common Stock
issued by the Company upon conversion of, or payment of interest on, the
Debentures); (B) subdivides outstanding shares of Common Stock into a larger
number of shares; (C) combines (including by way of a reverse stock split)
outstanding shares of Common Stock into a smaller number of shares; or (D)
issues, in the event of a reclassification of shares of the Common Stock, any
shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding any treasury shares of the Company) outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.

Subsequent Equity Sales

. If, at any time while this Debenture is outstanding, the Company or any
Subsidiary, as applicable, sells or grants any option to purchase or sells or
grants any right to reprice, or otherwise disposes of or issues (or announces
any sale, grant or any option to purchase or other disposition), any Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of
Common Stock at an effective price per share that is lower than the then
Conversion Price (such lower price, the "
Base Conversion Price
" and such issuances, collectively, a "
Dilutive Issuance
") (if the holder of the Common Stock or Common Stock Equivalents so issued
shall at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share that is lower than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price on such date of the
Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance. If the Company enters into a Variable Rate Transaction, despite the
prohibition set forth in the Purchase Agreement, the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion price at which such securities may be converted or exercised. The
Company shall notify the Holder in writing, no later than 1 Business Day
following the issuance of any Common Stock or Common Stock Equivalents subject
to this Section 5(b), indicating therein the applicable issuance price, or
applicable reset price, exchange price, conversion price and other pricing terms
(such notice, the "
Dilutive Issuance Notice
"). For purposes of clarification, whether or not the Company provides a
Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of
any Dilutive Issuance, the Holder is entitled to convert this Debenture into
Conversion Shares based upon the Base Conversion Price on or after the date of
such Dilutive Issuance, regardless of whether the Holder accurately refers to
the Base Conversion Price in the Notice of Conversion.

Subsequent Rights Offerings

. If the Company, at any time while the Debenture is outstanding, shall issue
rights, options or warrants to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share that is lower than the VWAP on the record date referenced below, then
the Conversion Price shall be multiplied by a fraction of which the denominator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
delivery to the Company in full of all consideration payable upon exercise of
such rights, options or warrants) would purchase at such VWAP. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.

Pro Rata Distributions

. If the Company, at any time while this Debenture is outstanding, distributes
to all holders of Common Stock (and not to the Holders) evidences of its
indebtedness or assets (including cash and cash dividends) or rights or warrants
to subscribe for or purchase any security (other than the Common Stock, which
shall be subject to Section 5(b)), then in each such case the Conversion Price
shall be adjusted by multiplying such Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
VWAP determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to 1 outstanding share of the Common Stock as determined
by the Board of Directors of the Company in good faith. In either case the
adjustments shall be described in a statement delivered to the Holder describing
the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to 1 share of Common Stock. Such adjustment shall
be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

Fundamental Transaction

. If, at any time while this Debenture is outstanding, (A) the Company effects
any merger or consolidation of the Company with or into another Person, (B) the
Company effects any sale of all or substantially all of its assets in one
transaction or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a "
Fundamental Transaction
"), then, upon any subsequent conversion of this Debenture, the Holder shall
have the right to receive, for each Conversion Share that would have been
issuable upon such conversion immediately prior to the occurrence of such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of 1 share of Common Stock (the "
Alternate Consideration
"). For purposes of any such conversion, the determination of the Conversion
Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of 1 share of
Common Stock in such Fundamental Transaction, and the Company shall apportion
the Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder's right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 5(e)
and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

Calculations

. All calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 5,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
any treasury shares of the Company) issued and outstanding.

Notice to the Holder

.

Adjustment to Conversion Price

. Whenever the Conversion Price is adjusted pursuant to any provision of this
Section 5, the Company shall promptly deliver to each Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.

Notice to Allow Conversion by Holder

. If (A) the Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock of
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be

delivered to the Holder at its last address as it shall appear upon the
Debenture Register, at least twenty (20) calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided that the failure to deliver such
notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. The
Holder is entitled to convert this Debenture during the 20-day period commencing
on the date of such notice through the effective date of the event triggering
such notice.

Section 6

. Optional and Monthly Redemption.

Optional Redemption at Election of Company

. Subject to the provisions of this Section 6, at any time while the Equity
Conditions are met, the Company may deliver a notice to the Holder (an "
Optional Redemption Notice
" and the date such notice is deemed delivered hereunder, the "
Optional Redemption Notice Date
") of its irrevocable election to redeem some or all of the then outstanding
principal amount of this Debenture for cash in an amount equal to the Optional
Redemption Amount on the 20
th
Trading Day following the Optional Redemption Notice Date (such date, the "
Optional Redemption Date
" and such redemption, the "
Optional Redemption
"). The Optional Redemption Amount is payable in full on the Optional Redemption
Date. The Company may only effect an Optional Redemption if each of the Equity
Conditions shall have been met (unless waived in writing by the Holder) on each
Trading Day during the period commencing on the Optional Redemption Notice Date
through to the Optional Redemption Date and through and including the date
payment of the Optional Redemption Amount is actually made in full. If any of
the Equity Conditions shall cease to be satisfied at any time during the 20
Trading Day period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within 3 Trading Days after the first day on
which any such Equity Condition has not been met (provided that if, by a
provision of the Transaction Documents, the Company is obligated to notify the
Holder of the non-existence of an Equity Condition, such notice period shall be
extended to the third Trading Day after proper notice from the Company) in which
case the Optional Redemption Notice shall be null and void,
ab
initio
. The Company covenants and agrees that it will honor all Notices of Conversion
tendered from the time of delivery of the Optional Redemption Notice through the
date all amounts owing thereon are due and paid in full.

Monthly Redemption

. On each Monthly Redemption Date, the Company shall redeem the Monthly
Redemption Amount (the "
Monthly Redemption
"). The Monthly Redemption Amount payable on each Monthly Redemption Date shall
be paid in cash;
provided
,
however
, as to any Monthly Redemption and upon 21 Trading Days' prior written
irrevocable notice (the "
Monthly Redemption Notice
"), in lieu of a cash redemption payment the Company may elect to pay all or
part of a Monthly Redemption Amount in Conversion Shares based on a conversion
price equal to the lesser of (i) the then Conversion Price and (ii) 80% of the
average of the VWAPs for the 5 consecutive Trading Days ending on the Trading
Day that is immediately prior to the applicable Monthly Redemption Date (subject
to adjustment for any stock dividend, stock split, stock combination or other
similar event affecting the Common Stock during such 5 Trading Day period) (the
price calculated during the 5 Trading Day period immediately prior to the
Monthly Redemption Date, the "
Monthly Conversion Price
" and such 5 Trading Day period, the "
Monthly Conversion Period
");
provided
,
further
, that the Company may not pay the Monthly Redemption Amount in Conversion
Shares unless (y) from the date the Holder receives the duly delivered Monthly
Redemption Notice through and until the date such Monthly Redemption is paid in
full, the Equity Conditions have been satisfied, unless waived in writing by the
Holder, and (z) as to such Monthly Redemption, prior to such Monthly Conversion
Period (but not more than 5 Trading Days prior to the commencement of the
Monthly Conversion Period), the Company shall have delivered to the Holder's
account with The Depository Trust Company a number of shares of Common Stock to
be applied against such Monthly Redemption Amount equal to the quotient of (x)
the applicable Monthly Redemption Amount divided by (y) the lesser of (A) the
Conversion Price and (B) 80% of the average of the 5 VWAPs during the period
ending on the 3
rd
Trading Day immediately prior to the date of the Monthly Redemption Notice, (the
"
Pre-Redemption Conversion Shares
"). The Holder may convert, pursuant to Section 4(a), any principal amount of
this Debenture subject to a Monthly Redemption at any time prior to the date
that the Monthly Redemption Amount, plus accrued but unpaid interest, liquidated
damages and any other amounts then owing to the Holder are due and paid in full.
Unless otherwise indicated by the Holder in the applicable Notice of Conversion,
any principal amount of this Debenture converted during the applicable Monthly
Conversion Period until the date the Monthly Redemption Amount is paid in full
shall be first applied to the principal amount subject to the Monthly Redemption
Amount payable in cash and then to the Monthly Redemption Amount payable in
Conversion Shares. Any principal amount of this Debenture converted during the
applicable Monthly Conversion Period in excess of the Monthly Redemption Amount
shall be applied against the last principal amount of this Debenture scheduled
to be redeemed hereunder, in reverse time order from the Maturity Date;
provided
,
however
, if any such conversion is applied against such Monthly Redemption Amount, the
Pre-Redemption Conversion Shares, if any were issued in connection with such
Monthly Redemption or were not already applied to such conversions, shall be
first applied against such conversion. The Company covenants and agrees that it
will honor all Notice of Conversions tendered up until such amounts are paid in
full. The Company's determination to pay a Monthly Redemption in cash, shares of
Common Stock or a combination thereof shall be applied ratably to all of the
holders of the then outstanding Debentures based on their (or their
predecessor's) initial purchases of Debentures pursuant to the Purchase
Agreement. At any time the Company delivers a notice to the Holder of its
election to pay the Monthly Redemption Amount in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing such
election.

 

Redemption Procedure

. The payment of cash or issuance of Common Stock, as applicable, pursuant to a
Monthly Redemption shall be payable on the Monthly Redemption Date. If any
portion of the payment pursuant to a Monthly Redemption shall not be paid by the
Company by the applicable due date, interest shall accrue thereon at an interest
rate equal to the lesser of 18% per annum or the maximum rate permitted by
applicable law until such amount is paid in full. Notwithstanding anything
herein contained to the contrary, if any portion of the Monthly Redemption
Amount remains unpaid after such date, the Holder may elect, by written notice
to the Company given at any time thereafter, to invalidate such Monthly
Redemption,
ab
initio
. Notwithstanding anything to the contrary in this Section 6, the Company's
determination to redeem in cash or its elections under Section 6(b) shall be
applied ratably among the Holders of Debentures. The Holder may elect to convert
the outstanding principal amount of the Debenture pursuant to Section 4 prior to
actual payment in cash for any redemption under this Section 6 by the delivery
of a Notice of Conversion to the Company.

Section 7

. Negative Covenants. As long as any portion of this Debenture remains
outstanding, unless the holders of at least 51% in principal amount of the then
outstanding Debentures shall have otherwise given prior written consent, the
Company shall not, and shall not permit any of its subsidiaries (whether or not
a Subsidiary on the Original Issue Date) to, directly or indirectly:

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;

other than Permitted Liens, enter into, create, incur, assume or suffer to exist
any Liens 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;

amend its charter documents, including, without limitation, its certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;

repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Common Stock or Common Stock Equivalents
other than as to (a) the Conversion Shares or Warrant Shares as permitted or
required under the Transaction Documents and (b) repurchases of Common Stock or
Common Stock Equivalents of departing officers and directors of the Company,
provided that such repurchases shall not exceed an aggregate of $100,000 for all
officers and directors during the term of this Debenture;

repay, repurchase or offer to repay, repurchase or otherwise acquire any
Indebtedness, other than the Debentures if on a pro-rata basis, other than
regularly scheduled principal and interest payments as such terms are in effect
as of the Original Issue Date;

pay cash dividends or distributions on any equity securities of the Company;

enter into any transaction with any Affiliate of the Company which would be
required to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm's-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or

enter into any agreement with respect to any of the foregoing.

Section 8. Events of Default.

"Event of Default" means, wherever used herein, any of the following events
(whatever the reason for such event and whether such event shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

any default in the payment of (A) the principal amount of any Debenture or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured within 3 Trading Days;

the Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (xi) below) which failure is not cured, if
possible to cure, within the earlier to occur of (A) 5 Trading Days after notice
of such failure sent by the Holder or by any other Holder and (B) 10 Trading
Days after the Company has become or should have become aware of such failure;

a default or event of default (subject to any grace or cure period provided in
the applicable agreement, document or instrument) shall occur under (A) any of
the Transaction Documents or (B) any other material agreement, lease, document
or instrument to which the Company or any Subsidiary is obligated (and not
covered by clause (vi) below);

any representation or warranty made in this Debenture, any other Transaction
Documents, any written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder or any other
Holder shall be untrue or incorrect in any material respect as of the date when
made or deemed made;

the Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;

the Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $150,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

the Common Stock shall not be eligible for listing or quotation for trading on a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days;

the Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of 33% of its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);

the Initial Registration Statement (as defined in the Registration Rights
Agreement) shall not have been declared effective by the Commission on or prior
to the 180th calendar day after the Closing Date;

if, during the Effectiveness Period (as defined in the Registration Rights
Agreement), either (a) the effectiveness of the Registration Statement lapses
for any reason or (b) the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement) under the
Registration Statement for a period of more than 20 consecutive Trading Days or
30 non-consecutive Trading Days during any 12 month period; provided, however,
that if the Company is negotiating a merger, consolidation, acquisition or sale
of all or substantially all of its assets or a similar transaction and, in the
written opinion of counsel to the Company, the Registration Statement would be
required to be amended to include information concerning such pending
transaction(s) or the parties thereto which information is not available or may
not be publicly disclosed at the time, the Company shall be permitted an
additional 10 consecutive Trading Days during any 12 month period pursuant to
this Section 8(a)(x);

the Company shall fail for any reason to deliver certificates to a Holder prior
to the fifth Trading Day after a Conversion Date pursuant to Section 4(d) or the
Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company's intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof; or

any monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or other
assets for more than $50,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

Remedies Upon Event of Default

. If any Event of Default occurs, the outstanding principal amount of this
Debenture, plus accrued but unpaid interest, liquidated damages and other
amounts owing in respect thereof through the date of acceleration, shall become,
at the Holder's election, immediately due and payable in cash at the Mandatory
Default Amount. Commencing 5 days after the occurrence of any Event of Default
that results in the eventual acceleration of this Debenture, the interest rate
on this Debenture shall accrue at an interest rate equal to the lesser of 18%
per annum or the maximum rate permitted under applicable law. Upon the payment
in full of the Mandatory Default Amount, the Holder shall promptly surrender
this Debenture to or as directed by the Company. In connection with such
acceleration described herein, the Holder need not provide, and the Company
hereby waives, any presentment, demand, protest or other notice of any kind, and
the Holder may immediately and without expiration of any grace period enforce
any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such acceleration may be rescinded and
annulled by Holder at any time prior to payment hereunder and the Holder shall
have all rights as a holder of the Debenture until such time, if any, as the
Holder receives full payment pursuant to this Section 8(b). No such rescission
or annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.

Section 9. Miscellaneous.

Notices

. Any and all notices or other communications or deliveries to be provided by
the Holder hereunder, including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile, or sent by a
nationally recognized overnight courier service, addressed to the Company, at
the address set forth above, or such other facsimile number or address as the
Company may specify for such purpose by notice to the Holder delivered in
accordance with this Section 9. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
the Holder appearing on the books of the Company, or if no such facsimile number
or address appears, at the principal place of business of the Holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section 9 prior to 5:30 p.m. (New York City time), (ii) the date
immediately following the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified in this Section 9
between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on
any date, (iii) the second Business Day following the date of mailing, if sent
by nationally recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.

Absolute Obligation

. Except as expressly provided herein, no provision of this Debenture shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, liquidated damages and accrued interest,
as applicable, on this Debenture at the time, place, and rate, and in the coin
or currency, herein prescribed. This Debenture is a direct debt obligation of
the Company. This Debenture ranks
pari
passu
with all other Debentures now or hereafter issued under the terms set forth
herein.

Lost or Mutilated Debenture

. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company
shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, reasonably satisfactory to the Company.

Governing Law

. All questions concerning the construction, validity, enforcement and
interpretation of this Debenture shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflict of laws thereof. Each party agrees that all legal
proceedings concerning the interpretation, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the "
New York Courts
"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction
of the New York Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such New York Courts, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding 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 Debenture 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 applicable law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Debenture or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred in the investigation, preparation and prosecution of such
action or proceeding.

Waiver

. Any waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver by
the Company or the Holder must be in writing.

Severability

. If any provision of this Debenture is invalid, illegal or unenforceable, the
balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless remain
applicable to all other Persons and circumstances. If it shall be found that any
interest or other amount deemed interest due hereunder violates the applicable
law governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum rate of interest permitted under
applicable law. The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on this Debenture as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.

Next Business Day

. Whenever any payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day.

Headings

. The headings contained herein are for convenience only, do not constitute a
part of this Debenture and shall not be deemed to limit or affect any of the
provisions hereof.

Assumption

.  Any successor to the Company or any surviving entity in a Fundamental
Transaction shall (i) assume, prior to such Fundamental Transaction, all of the
obligations of the Company under this Debenture and the other Transaction
Documents pursuant to written agreements in form and substance satisfactory to
the Holder (such approval not to be unreasonably withheld or delayed) and (ii)
issue to the Holder a new debenture of such successor entity evidenced by a
written instrument substantially similar in form and substance to this
Debenture, including, without limitation, having a principal amount and interest
rate equal to the principal amount and the interest rate of this Debenture and
having similar ranking to this Debenture, which shall be satisfactory to the
Holder (any such approval not to be unreasonably withheld or delayed).  The
provisions of this Section 9(i) shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
of this Debenture.

 

*********************

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by
a duly authorized officer as of the date first above indicated.

 

AURELIO RESOURCES CORPORATION

 

By:__________________________________________

Name:

Title:

Facsimile No. for delivery of Notices: _______________

   

 

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 10% Convertible
Debenture due May ___, 2009 of Aurelio Resources Corporation, a Nevada
corporation (the "Company"), into shares of common stock (the "Common Stock"),
of the Company according to the conditions hereof, as of the date written below.
If shares of Common Stock are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Debenture, as determined in
accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Payment of Interest in Common Stock __ yes __ no

If yes, $_____ of Interest Accrued on Account of Conversion at Issue.

Number of shares of Common Stock to be issued:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:

Account No:

Schedule 1

CONVERSION SCHEDULE

The 10% Convertible Debentures due on May ___, 2009 in the aggregate principal
amount of $____________ are issued by Aurelio Resources Corporation. This
Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.

Dated:

 

 

Date of Conversion

(or for first entry, Original Issue Date)

Amount of Conversion

Aggregate Principal Amount Remaining Subsequent to Conversion

(or original Principal Amount)

Company Attest