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THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.

LITHIUM EXPLORATION GROUP, INC.

Convertible Promissory Note
due August 28, 2015

USD$125,500.00

Dated: February 28, 2014

               For value received, Lithium Exploration Group, Inc., a Nevada
corporation (the “Company”), hereby promises to pay to the order of St. George
Investments LLC, a Utah limited liability company (together with its successors,
representatives, and permitted assigns, the “Holder”), in accordance with the
terms hereinafter provided, One Hundred Twenty-Five Thousand Five Hundred
Dollars ($125,500.00) (the “Outstanding Balance”), which includes the aggregate
principal sum of One Hundred Thousand Dollars ($100,000.00), 15% prepaid
interest per annum over 18 months and $3,000 in legal fees. The Outstanding
Balance outstanding shall be due and payable on the following schedule and shall
include any increases to the amount owed under this Note pursuant to the terms
hereof:

1.

$125,500.00, being $100,000.00, 15% prepaid interest per annum over 18 months
and $3,000 in legal fees, shall be due 18 months from the date hereof and the
Company is in receipt of the payment of $100,000.00 from the Holder. The entire
Outstanding Balance shall be fully earned and owing under this Note as of the
date hereof.

               The due dates of any outstanding principal balance are referred
to herein as the “Maturity Date”, respectively.

               All payments under or pursuant to this Note refer to and shall be
made in United States Dollars in immediately available funds to the Holder at
the address of the Holder first set forth above or at such other place as the
Holder may designate from time to time in writing to the Company or by wire
transfer of funds to the Holder’s account, instructions for which are attached
hereto as Exhibit A.

ARTICLE I

                             Section 1.1               Purchase Agreement. This
Note has been executed and delivered pursuant to the Purchase Agreement dated as
of February 28, 2014 (the “Purchase Agreement”) by and among the Company and the
purchasers listed therein. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth for such terms in the Purchase
Agreement.

                             Section 1.2                Interest.

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                             (a)               Beginning on the issuance date of
this Note (the “Issuance Date”), the outstanding principal balance of this Note
shall bear interest, in arrears, at a rate per annum equal to 15 percent
accruing on an 18 month basis commencing February 28, 2014 in cash or restricted
shares of the Company’s common stock, par value $0.001 per share (the “Common
Stock”) at the option of the Holder pursuant to Section 3 below.

                             Section 1.2              Payment on Non-Business
Days. Whenever any payment to be made shall be due on a Saturday, Sunday or a
public holiday under the laws of the State of Utah, such payment may be due on
the next succeeding business day and such next succeeding day shall be included
in the calculation of the amount of accrued interest payable on such date.

                              Section 1.3             Transfer. This Note may be
transferred or sold, subject to the provisions of Section 4.8 of this Note, or
pledged, hypothecated or otherwise granted as security by the Holder.

                              Section 1.4             Replacement. Upon receipt
of a duly executed, notarized and unsecured written statement from the Holder
with respect to the loss, theft or destruction of this Note (or any replacement
hereof), and without requiring an indemnity bond or other security, or, in the
case of a mutilation of this Note, upon surrender and cancellation of such Note,
the Company shall issue a new Note, of like tenor and amount, in lieu of such
lost, stolen, destroyed or mutilated Note.

ARTICLE II

EVENTS OF DEFAULT; REMEDIES

                              Section 2.1               Events of Default. The
occurrence of any of the following events shall be an “Event of Default” under
this Note:

               (a)               the Company shall fail to make the payment of
any amount owing under this Note on the date such payment is due hereunder;

               (b)               the Company shall fail to deliver any shares of
Common Stock under this Note or the Warrant for a period of three (3) days after
the date such delivery is required to be made;

               (c)               the suspension from listing, without subsequent
listing on any one of, or the failure of the Common Stock to be quoted or listed
on at least one of the OTC QB, OTC Bulletin Board, Nasdaq SmallCap Market,
Nasdaq National Market, American Stock Exchange or The New York Stock Exchange,
Inc. for a period of five (5) consecutive Trading Days;

               (d)              the Company’s notice to the Holder, including by
way of public announcement, at any time, of its inability to comply or its
intention not to comply with proper requests for conversion of this Note into
shares of Common Stock;

               (e)               the Company shall fail to (i) timely deliver
the shares of Common Stock upon conversion of the Note or any accrued and unpaid
interest, or (ii) make the payment of any fees and/or liquidated damages under
this Note or the Purchase Agreement, which failure in the case of items (i) and
(ii) of this Section 2.1(e) is not remedied within three (3) business days after
the incurrence thereof;

               (f)               default shall be made in the performance or
observance of (i) any material covenant, condition or agreement contained in
this Note (other than as set forth in clause (e) of this Section 2.1) and such
default is not fully cured within five (5) business days after the occurrence
thereof or (ii) any material covenant, condition or agreement contained in the
Purchase Agreement or any other Transaction Document which is not covered by any
other provisions of this Section 2.1 and such default is not fully cured within
five (5) business days after the occurrence thereof;

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               (g)               any material representation or warranty made by
the Company herein or in the Purchase Agreement or any other Transaction
Document shall prove to have been false or incorrect or breached in a material
respect on the date as of which made;

               (h)               the Company shall (A) default in any payment of
any amount or amounts of principal of or interest on any Indebtedness (other
than the Indebtedness hereunder) the aggregate principal amount of which
Indebtedness is in excess of $100,000 or (B) default in the observance or
performance of any other agreement or condition relating to any Indebtedness or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders or beneficiary or beneficiaries of such Indebtedness to cause with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity;

               (i)               the Company shall (i) apply for or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property
or assets, (ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the United States Bankruptcy Code (as now
or hereafter in effect) or under the comparable laws of any jurisdiction
(foreign or domestic), (iv) file a petition seeking to take advantage of any
bankruptcy, insolvency, moratorium, reorganization or other similar law
affecting the enforcement of creditors’ rights generally, (v) acquiesce in
writing to any petition filed against it in an involuntary case under United
States Bankruptcy Code (as now or hereafter in effect) or under the comparable
laws of any jurisdiction (foreign or domestic), (vi) issue a notice of
bankruptcy or winding down of its operations or issue a press release regarding
same, or (vii) take any action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing;

               (j)               a proceeding or case shall be commenced in
respect of the Company, without its application or consent, in any court of
competent jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of it or
of all or any substantial part of its assets in connection with the liquidation
or dissolution of the Company or (iii) similar relief in respect of it under any
law providing for the relief of debtors, and such proceeding or case described
in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a period of sixty (60) days or any order for relief shall be entered
in an involuntary case under United States Bankruptcy Code (as now or hereafter
in effect) or under the comparable laws of any jurisdiction (foreign or
domestic) against the Company or action under the laws of any jurisdiction
(foreign or domestic) analogous to any of the foregoing shall be taken with
respect to the Company and shall continue undismissed, or unstayed and in effect
for a period of sixty (60) days; or

               (k)               the failure of the Company to instruct its
transfer agent to remove any legends from shares of Common Stock eligible to be
sold under Rule 144 of the Securities Act and issue such unlegended certificates
to the Holder within five (5) business days of the Holder’s request so long as
the Holder has provided reasonable assurances and opinions of counsel to the
Company that such shares of Common Stock can be resold pursuant to Rule 144;

               (l)                the failure of the Company to pay any amounts
due to the Holder herein within three (3) business days of receipt of notice to
the Company; or

               (m)              the failure of the Company at any time following
the date hereof to maintain the Share Reserve (as defined below).

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                              Section 2.2               Remedies Upon An Event
of Default. If an Event of Default shall have occurred and shall be continuing,
the Holder of this Note may at any time at its option, (a) declare the entire
unpaid principal balance of this Note, together with all interest accrued
hereon, due and payable, and thereupon, the same shall be accelerated and so due
and payable, without presentment, demand, protest, or notice, all of which are
hereby expressly unconditionally and irrevocably waived by the Company;
provided, however, that upon the occurrence of an Event of Default described in
(i) Sections 2.1 (k) or (l), the outstanding principal balance and interest
hereunder shall be automatically due and payable and (ii) Sections 2.1 (a)-(j)
and 2.1(m) -(n), demand the prepayment of this Note pursuant to Section 3.6
hereof, (b) subject to Section 3.4 hereof, demand that the principal amount of
this Note then outstanding shall be converted into shares of Common Stock at a
Conversion Price (as defined in Section 3.2(a) hereof) per share calculated
pursuant to Section 3.1 hereof assuming that the date that the Event of Default
occurs is the Conversion Date and demand that all accrued and unpaid interest
under this Note shall be converted into shares of Common Stock in accordance
with Section 1.2 hereof, or (c) exercise or otherwise enforce any one or more of
the Holder’s rights, powers, privileges, remedies and interests under this Note,
the Purchase Agreement, other Transaction Document or applicable law. No course
of delay on the part of the Holder shall operate as a waiver thereof or
otherwise prejudice the right of the Holder. No remedy conferred hereby shall be
exclusive of any other remedy referred to herein or now or hereafter available
at law, in equity, by statute or otherwise.

ARTICLE III

CONVERSION; ANTIDILUTION; PREPAYMENT

                              Section 3.1               Conversion Option.

               (a)               At any time on or after the Issuance Date, this
Note shall be convertible (in whole or in part), at the option of the Holder
(the “Conversion Option”), into such number of fully paid and non-assessable
shares of Common Stock (the “Conversion Rate”) as is determined by dividing that
portion of the outstanding principal balance under this Note as of such date
that the Holder elects to convert by the Conversion Price (as defined in Section
3.2(a) hereof) then in effect on the date on which the Holder faxes a notice of
conversion (the “Conversion Notice”), duly executed, to the Company (the
“Voluntary Conversion Date”), provided, however, that the Conversion Price shall
be subject to adjustment as described in Section 3.5 below. The Holder shall
deliver this Note to the Company at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With respect to
partial conversions of this Note, the Company shall keep written records of the
amount of this Note converted as of each Conversion Date.

               (b)               On any Voluntary Conversion Date, the Holder
may cause that any of the Outstanding Balance of this Note plus all accrued and
unpaid interest to convert into a number of fully paid and nonassessable shares
of Common Stock equal to the quotient of the elected outstanding principal
amount of this Note plus all accrued interest on the elected outstanding on the
Voluntary Conversion Date (as described in this Section below) divided by the
Conversion Price as described in Section 3.2(a) below.

Furthermore, upon the occurrence of an Event of Default (as defined in Section
2.1 hereof), then to the extent permitted by law, the Company will pay interest
to the Holder, payable on demand, on the outstanding principal balance of the
Note from the date of the Event of Default until such Event of Default is cured
at the rate of the lesser of fifteen percent (15%) and the maximum applicable
legal rate per annum.

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                                             (a)               Conversion
Limitations; Holder’s Restriction on Conversion. Notwithstanding anything to the
contrary contained in this Note or the other Transaction Documents (as defined
in the Purchase Agreement), if at any time the Holder shall or would be issued
shares of Common Stock under any of the Transaction Documents, but such issuance
would cause the Holder (together with its Affiliates) to beneficially own a
number of shares exceeding 4.99% of the number of shares of Common Stock
outstanding on such date (including for such purpose the shares of Common Stock
issuable upon such issuance) (the “Maximum Percentage”), then the Company must
not issue to the Holder shares of the Common Stock which would exceed the
Maximum Percentage. For purposes of this Section, beneficial ownership of Common
Stock will be determined under the 1934 Act. The shares of Common Stock issuable
to the Holder that would cause the Maximum Percentage to be exceeded are
referred to herein as the "Ownership Limitation Shares". The Company will
reserve the Ownership Limitation Shares for the exclusive benefit of the Holder.
From time to time, the Holder may notify the Company in writing of the number of
the Ownership Limitation Shares that may be issued to the Holder without causing
the Holder to exceed the Maximum Percentage. Upon receipt of such notice, the
Company shall be unconditionally obligated to immediately issue such designated
shares to the Holder, with a corresponding reduction in the number of the
Ownership Limitation Shares. Notwithstanding the forgoing, the term “4.99%”
above shall be replaced with “9.99%” at such time as the Market Capitalization
of the Common Stock is less than $10,000,000.00. Notwithstanding any other
provision contained herein, if the term “4.99%” is replaced with “9.99%”
pursuant to the preceding sentence, such increase to “9.99%” shall remain at
9.99% until increased, decreased or waived by the Holder as set forth below. For
purposes of this Note, the term “Market Capitalization of the Common Stock”
shall mean the product equal to (A) the average VWAP of the Common Stock for the
immediately preceding fifteen (15) Trading Days, multiplied by (B) the aggregate
number of outstanding shares of Common Stock as reported on the Company’s most
recently filed Form 10-Q or Form 10-K. By written notice to the Company, the
Holder may increase, decrease or waive the Maximum Percentage as to itself but
any such waiver will not be effective until the 61st day after delivery thereof.
The foregoing 61-day notice requirement is enforceable, unconditional and
non-waivable and shall apply to all Affiliates and assigns of the Holder.

                              Section 3.2               Conversion Price.

                              (a)               The term “Conversion Price”
shall mean the lower of a 50% discount of the lowest closing price of the common
stock for the 20 trading days immediately prior to (i) the date of the Purchase
Agreement, or (ii) the Voluntary Conversion Date.

                              Section 3.3               Mechanics of Conversion.

                              (a)               Not later than three (3) Trading
Days after any Conversion Date, the Company or its designated transfer agent, as
applicable, shall issue and deliver to the Depository Trust Company (“DTC”)
account on the Holder’s behalf via the Deposit Withdrawal Agent Commission
System (“DWAC”) as specified in the Conversion Notice, registered in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder shall be entitled. In the alternative, not later than three (3)
Trading Days after any Conversion Date, the Company shall deliver to the
applicable Holder by express courier a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 5.1 of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of this Note (the
“Delivery Date”). Notwithstanding the foregoing to the contrary, the Company or
its transfer agent shall only be obligated to issue and deliver the shares to
the DTC on the Holder’s behalf via DWAC (or certificates free of restrictive
legends) if such conversion is in connection with a sale and the Holder has
complied with the applicable prospectus delivery requirements. If in the case of
any Conversion Notice such certificate or certificates are not delivered to or
as directed by the applicable Holder by the Delivery Date, the Holder shall be
entitled by written notice to the Company at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such conversion, in
which event the Company shall immediately return this Note if tendered for
conversion, whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 3.3(b) and (c) shall
be payable through the date notice of rescission is given to the Company.

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                              (b)               The Company understands that a
delay in the delivery of the shares of Common Stock upon conversion of this Note
beyond the Delivery Date could result in economic loss to the Holder. If the
Company fails to deliver to the Holder such shares via DWAC or a certificate or
certificates pursuant to this Section hereunder by the Delivery Date, the
Company shall pay to such Holder, in cash, an amount per Trading Day for each
Trading Day until such shares are delivered via DWAC or certificates are
delivered, together with interest on such amount at a rate of 10% per annum,
accruing until such amount and any accrued interest thereon is paid in full,
equal to the greater of (A) (i) 1% of the portion of the Outstanding Balance
requested to be converted for the first five (5) Trading Days after the Delivery
Date and (ii) 2% of the portion of the Outstanding Balance requested to be
converted for each Trading Day thereafter and (B) $2,000 per day (which amount
shall be paid as liquidated damages and not as a penalty). Nothing herein shall
limit a Holder’s right to pursue actual damages for the Company’s failure to
deliver certificates representing shares of Common Stock upon conversion within
the period specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity (including, without limitation, a
decree of specific performance and/or injunctive relief). Notwithstanding
anything to the contrary contained herein, the Holder shall be entitled to
withdraw a Conversion Notice, and upon such withdrawal the Company shall only be
obligated to pay the liquidated damages accrued in accordance with this Section
3.3(b) through the date the Conversion Notice is withdrawn.

                              (c)               In addition to any other rights
available to the Holder, if the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the shares of
Common Stock issuable upon conversion of this Note on or before the Delivery
Date, and if after such date the Holder is required by its broker to purchase
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the shares of Common Stock issuable
upon conversion of this Note which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the
amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y) the
amount obtained by multiplying (A) the number of shares of Common Stock issuable
upon conversion of this Note that the Company was required to deliver to the
Holder in connection with the conversion at issue times (B) the price at which
the sell order giving rise to such purchase obligation was executed, and (2) at
the option of the Holder, either reinstate the portion of the Note and
equivalent number of shares of Common Stock for which such conversion was not
honored or deliver to the Holder the number of shares of Common Stock that would
have been issued had the Company timely complied with its conversion and
delivery obligations hereunder. 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 shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) 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, together with applicable
confirmations and other evidence reasonably requested by the Company. 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 Note as required pursuant to the terms hereof.

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                              Section 3.4               Ownership Cap and
Certain Conversion Restrictions.

                              Notwithstanding anything to the contrary set forth
in Section 3 of this Note, at no time may the Holder convert all or a portion of
this Note if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by the Holder at such time, the number of shares of Common Stock which
would result in the Holder beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder) more than 9.9% of
all of the Common Stock outstanding at such time; provided, however, that upon
the Holder providing the Company with sixty-one (61) days notice (pursuant to
Section 4.1 hereof) (the “Waiver Notice”) that the Holder would like to waive
this Section 3.4 with regard to any or all shares of Common Stock issuable upon
conversion of this Note, this Section 3.4 will be of no force or effect with
regard to all or a portion of the Note referenced in the Waiver Notice;
provided, further, that this provision shall be of no further force or effect
during the sixty-one (61) days immediately preceding the Maturity Date.

                              Section 3.5               Adjustment of Conversion
Price.

                              (a)               The Conversion Price shall be
subject to adjustment from time to time as follows:

                                                  (i)               Adjustments
for Stock Splits and Combinations. If the Company shall at any time or from time
to time after the Issuance Date, effect a stock split of the outstanding Common
Stock, the applicable Conversion Price in effect immediately prior to the stock
split shall be proportionately decreased. If the Company shall at any time or
from time to time after the Issuance Date, combine the outstanding shares of
Common Stock, the applicable Conversion Price in effect immediately prior to the
combination shall be proportionately increased. Any adjustments under this
Section 3.5(a)(i) shall be effective at the close of business on the date the
stock split or combination occurs.

                                                  (ii)               Adjustments
for Certain Dividends and Distributions. If the Company shall at any time or
from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in shares of Common Stock, then, and in each
event, the applicable Conversion Price in effect immediately prior to such event
shall be decreased as of the time of such issuance or, in the event such record
date shall have been fixed, as of the close of business on such record date, by
multiplying, the applicable Conversion Price then in effect by a fraction:

                                                                     
(1)               the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and

                                                                     
(2)               the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution.

                                                  (iii)               Adjustment
for Other Dividends and Distributions. If the Company shall at any time or from
time to time after the Issuance Date, make or issue or set a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in other than shares of Common Stock, then, and in each
event, an appropriate revision to the applicable Conversion Price shall be made
and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holders of this Note shall receive upon conversions
thereof, in addition to the number of shares of Common Stock receivable thereon,
the number of securities of the Company which they would have received had this
Note been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities (together with any distributions
payable thereon during such period), giving application to all adjustments
called for during such period under this Section 3.5(a)(iii) with respect to the
rights of the holders of this Note; provided, however, that if such record date
shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions.

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                                                  (iv)               Adjustments
for Reclassification, Exchange or Substitution. If the Common Stock issuable
upon conversion of this Note at any time or from time to time after the Issuance
Date shall be changed to the same or different number of shares of any class or
classes of stock, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of shares or stock
dividends provided for in Sections 3.5(a)(i), (ii) and (iii), or a
reorganization, merger, consolidation, or sale of assets provided for in Section
3.5(a)(v)), then, and in each event, an appropriate revision to the Conversion
Price shall be made and provisions shall be made (by adjustments of the
Conversion Price or otherwise) so that the Holder shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of shares of Common Stock into which such
Note might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.

                                                  (v)               Adjustments
for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or
from time to time after the Issuance Date there shall be a capital
reorganization of the Company (other than by way of a stock split or combination
of shares or stock dividends or distributions provided for in Section 3.5(a)(i),
(ii) and (iii), or a reclassification, exchange or substitution of shares
provided for in Section 3.5(a)(iv)), or a merger or consolidation of the Company
with or into another corporation where the holders of outstanding voting
securities prior to such merger or consolidation do not own over fifty percent
(50%) of the outstanding voting securities of the merged or consolidated entity,
immediately after such merger or consolidation, or the sale of all or
substantially all of the Company’s properties or assets to any other person (an
“Organic Change”), then as a part of such Organic Change an appropriate revision
to the Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the Holder shall have
the right thereafter to convert such Note into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
3.5(a)(v) with respect to the rights of the Holder after the Organic Change to
the end that the provisions of this Section 3.5(a)(v) (including any adjustment
in the applicable Conversion Price then in effect and the number of shares of
stock or other securities deliverable upon conversion of this Note) shall be
applied after that event in as nearly an equivalent manner as may be
practicable.

                                                  (vi)               Issuance of
Common Stock Equivalents. If the Company, at any time after the Issuance Date,
shall issue any securities convertible into or exchangeable for, directly or
indirectly, Common Stock (“Convertible Securities”), other than the Note, or any
rights or warrants or options to purchase any such Common Stock or Convertible
Securities, shall be issued or sold (collectively, the “Common Stock
Equivalents”) and the aggregate of the price per share for which Additional
Shares of Common Stock may be issuable thereafter pursuant to such Common Stock
Equivalent, plus the consideration received by the Company for issuance of such
Common Stock Equivalent divided by the number of shares of Common Stock issuable
pursuant to such Common Stock Equivalent (the “Aggregate Per Common Share
Price”) shall be less than the applicable Conversion Price then in effect, or
if, after any such issuance of Common Stock Equivalents, the price per share for
which Additional Shares of Common Stock may be issuable thereafter is amended or
adjusted, and such price as so amended shall make the Aggregate Per Share Common
Price be less than the applicable Conversion Price in effect at the time of such
amendment or adjustment, then the applicable Conversion Price upon each such
issuance or amendment shall be adjusted as provided in the first sentence of
subsection (vi) of this Section 3.5(a) on the basis that (1) the maximum number
of Additional Shares of Common Stock issuable pursuant to all such Common Stock
Equivalents shall be deemed to have been issued (whether or not such Common
Stock Equivalents are actually then exercisable, convertible or exchangeable in
whole or in part) as of the earlier of (A) the date on which the Company shall
enter into a firm contract for the issuance of such Common Stock Equivalent, or
(B) the date of actual issuance of such Common Stock Equivalent. No adjustment
of the applicable Conversion Price shall be made under this subsection (vii)
upon the issuance of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any adjustment shall previously have been made to the exercise price of such
warrants then in effect upon the issuance of such warrants or other rights
pursuant to this subsection (vii). No adjustment shall be made to the Conversion
Price upon the issuance of Common Stock pursuant to the exercise, conversion or
exchange of any Convertible Security or Common Stock Equivalent where an
adjustment to the Conversion Price was made as a result of the issuance or
purchase of any Convertible Security or Common Stock Equivalent.

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                                                  (vii)              
Consideration for Stock. In case any shares of Common Stock or any Common Stock
Equivalents shall be issued or sold:

                                                                     
(1)               in connection with any merger or consolidation in which the
Company is the surviving corporation (other than any consolidation or merger in
which the previously outstanding shares of Common Stock of the Company shall be
changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefor shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the non-surviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or

                                                                     
(2)               in the event of any consolidation or merger of the Company in
which the Company is not the surviving corporation or in which the previously
outstanding shares of Common Stock of the Company shall be changed into or
exchanged for the stock or other securities of another corporation, or in the
event of any sale of all or substantially all of the assets of the Company for
stock or other securities of any corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or securities or
other property of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated, and for a consideration
equal to the fair market value on the date of such transaction of all such stock
or securities or other property of the other corporation. If any such
calculation results in adjustment of the applicable Conversion Price, or the
number of shares of Common Stock issuable upon conversion of the Note, the
determination of the applicable Conversion Price or the number of shares of
Common Stock issuable upon conversion of the Note immediately prior to such
merger, consolidation or sale, shall be made after giving effect to such
adjustment of the number of shares of Common Stock issuable upon conversion of
the Note. In the event Common Stock is issued with other shares or securities or
other assets of the Company for consideration which covers both, the
consideration computed as provided in this Section 3.5(viii) shall be allocated
among such securities and assets as determined in good faith by the Board of
Directors of the Company.

                              (b)               Record Date. In case the Company
shall take record of the holders of its Common Stock for the purpose of
entitling them to subscribe for or purchase Common Stock or

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Convertible Securities, then the date of the issue or sale of the shares of
Common Stock shall be deemed to be such record date.

                              (c)               Certain Issues Excepted.
Anything herein to the contrary notwithstanding, the Company shall not be
required to make any adjustment to the Conversion Price in connection with (i)
securities issued (other than for cash) in connection with a merger,
acquisition, or consolidation, (ii) securities issued pursuant to a bona fide
firm underwritten public offering of the Company’s securities, (iii) securities
issued pursuant to the conversion or exercise of convertible or excercisable
securities issued or outstanding on or prior to the date hereof or issued
pursuant to the Purchase Agreement, (iv) the shares of Common Stock issuable
upon the exercise of Warrants, (v) securities issued in connection with
strategic license agreements or other partnering arrangements so long as such
issuances are not for the purpose of raising capital, (vi) Common Stock issued
or options to purchase Common Stock granted or issued pursuant to the Company’s
stock option plans and employee stock purchase plans as they now exist and (vii)
the payment of any accrued interest in shares of Common Stock pursuant to this
Note.

                              (d)               No Impairment. The Company shall
not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith, assist in the
carrying out of all the provisions of this Section 3.5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the Holder against impairment. In the event a Holder shall
elect to convert any Note as provided herein, the Company cannot refuse
conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, violation
of an agreement to which such Holder is a party or for any reason whatsoever,
unless, an injunction from a court, or notice, restraining and or adjoining
conversion of all or of said Note shall have issued and the Company posts a
surety bond for the benefit of such Holder in an amount equal to one hundred
thirty percent (130%) of the amount of the Note the Holder has elected to
convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.

                              (e)               Certificates as to Adjustments.
Upon occurrence of each adjustment or readjustment of the Conversion Price or
number of shares of Common Stock issuable upon conversion of this Note pursuant
to this Section 3.5, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
the Holder a certificate setting forth such adjustment and readjustment, showing
in detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon written request of the Holder, at any time, furnish or cause
to be furnished to the Holder a like certificate setting forth such adjustments
and readjustments, the applicable Conversion Price in effect at the time, and
the number of shares of Common Stock and the amount, if any, of other securities
or property which at the time would be received upon the conversion of this
Note. Notwithstanding the foregoing, the Company shall not be obligated to
deliver a certificate unless such certificate would reflect an increase or
decrease of at least one percent (1%) of such adjusted amount.

                              (f)               Issue Taxes. The Company shall
pay any and all issue and other taxes, excluding federal, state or local income
taxes, that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of this Note pursuant thereto; provided, however,
that the Company shall not be obligated to pay any transfer taxes resulting from
any transfer requested by the Holder in connection with any such conversion.

                              (g)               Fractional Shares. No fractional
shares of Common Stock shall be issued upon

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conversion of this Note. In lieu of any fractional shares to which the Holder
would otherwise be entitled, the Company shall pay cash equal to the product of
such fraction multiplied by the average of the Closing Bid Prices of the Common
Stock for the five (5) consecutive Trading Days immediately preceding the
Conversion Date.

                              (h)               Reservation of Common Stock. The
Company shall at all times when this Note shall be outstanding, reserve and keep
available out of its authorized but unissued Common Stock, such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of this Note and all interest accrued thereon; provided that the
number of shares of Common Stock so reserved shall at no time be less than four
(4) times (i) the number of shares of Common Stock for which this Note and all
interest accrued thereon are at any time convertible and (ii) the number of
shares exercisable under the Warrant (the “Share Reserve”). The Company shall,
from time to time in accordance with Utah corporate law, increase the authorized
number of shares of Common Stock if at any time the unissued number of
authorized shares shall not be sufficient to satisfy the Company’s obligations
under this Section 3.5(h) .

                              (i)               Regulatory Compliance. If any
shares of Common Stock to be reserved for the purpose of conversion of this Note
or any interest accrued thereon require registration or listing with or approval
of any governmental authority, stock exchange or other regulatory body under any
federal or state law or regulation or otherwise before such shares may be
validly issued or delivered upon conversion, the Company shall, at its sole cost
and expense, in good faith and as expeditiously as possible, endeavor to secure
such registration, listing or approval, as the case may be.

                              Section 3.6               Prepayment.

                              (a)               Prepayment Upon an Event of
Default. Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default described in Sections 2.1(a) -(j) and 2.1(m)
-(o) hereof, (i) the Outstanding Balance shall automatically increase to one
hundred twenty percent of the Outstanding Balance immediately prior to such
Event of Default, and (ii) the Holder shall have the right, at such Holder’s
option, to require the Company to prepay in cash all or a portion of the
Outstanding Balance plus all accrued and unpaid interest applicable at the time
of such request (the “Event of Default Prepayment Price”). Nothing in this
Section 3.6(a) shall limit the Holder’s rights under Section 2.2 hereof.

                              (b)               Prepayment Option Upon Major
Transaction. In addition to all other rights of the Holder contained herein,
simultaneous with the occurrence of a Major Transaction (as defined in Section
3.6(e) hereof), the Holder shall have the right, at the Holder’s option, to
require the Company to prepay all or a portion of the Holder’s Note at a price
equal to one hundred ten percent (110%) of the Outstanding Balance plus all
accrued and unpaid interest (the “Major Transaction Prepayment Price”).

                              (c)               Prepayment Option Upon
Triggering Event. In addition to all other rights of the Holder contained
herein, after a Triggering Event (as defined below), the Holder shall have the
right, at the Holder’s option, to require the Company to prepay all or a portion
of this Note in cash at a price equal to the sum of (i) the greater of (A) one
hundred twenty percent (120%) of the Outstanding Balance plus all accrued and
unpaid interest and (B) in the event at such time the Holder is unable to obtain
the benefit of its conversion rights through the conversion of this Note and
resale of the shares of Common Stock issuable upon conversion hereof in
accordance with the terms of this Note and the other Transaction Documents, the
Outstanding Balance plus all accrued but unpaid interest hereon, divided by the
Conversion Price on (x) the date the Prepayment Price (as defined below) is
demanded or otherwise due or (y) the date the Prepayment Price is paid in full,
whichever is less, multiplied by the VWAP on (x) the date the Prepayment Price
is demanded or otherwise due, and (y) the date the Prepayment Price is paid in
full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note and the other Transaction
Documents (the “Triggering Event Prepayment Price,” and, collectively with the
“Major Transaction Prepayment Price,” the “Prepayment Price”).

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                              (d)               Major Transaction. A “Major
Transaction” shall be deemed to have occurred at such time as any of the
following events:

                                                 (i)               the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
(B) a consolidation, merger or other business combination in which holders of
the Company’s voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the
board of directors (or their equivalent if other than a corporation) of such
entity or entities); or

                                                 (ii)               the sale or
transfer of more than fifty percent (50%) of the Company’s assets (based on the
fair market value as determined in good faith by the Company’s Board of
Directors) other than inventory in the ordinary course of business in one or a
related series of transactions; or

                                                 (iii)              closing of a
purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted.

                              (e)               Triggering Event. A “Triggering
Event” shall be deemed to have occurred at such time as any of the following
events:

                                                 (i)                the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, Nasdaq SmallCap Market, Nasdaq National Market, American Stock Exchange
or The New York Stock Exchange, Inc. for a period of five (5) consecutive
Trading Days;

                                                 (ii)                the
Company’s notice to any holder of the Note, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8) or its intention not to comply with proper
requests for conversion of any Note into shares of Common Stock; or

                                                 (iii)                the
Company’s failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Note within ten (10) business days after the receipt by
the Company of the Conversion Notice; or

                                                 (iv)                the Company
deregisters its shares of Common Stock and as a result such shares of Common
Stock are no longer publicly traded; or

                                                  (v)                 the
Company consummates a “going private” transaction and as a result the Common
Stock is no longer registered under Sections 12(b) or 12(g) of the Exchange Act.

                              (f)               Mechanics of Prepayment at
Option of Holder Upon Major Transaction. No sooner than fifteen (15) days nor
later than ten (10) days prior to the consummation of a Major Transaction, but
not prior to the public announcement of such Major Transaction, the Company
shall deliver written notice thereof via facsimile and overnight courier
(“Notice of Major Transaction”) to the Holder of this Note. At any time after
receipt of a Notice of Major Transaction (or, in the event a Notice of Major
Transaction is not delivered at least ten (10) days prior to a Major
Transaction, at any time within ten (10) days prior to a Major Transaction), any
holder of the Notes then outstanding may require the Company to prepay,
effective immediately prior to the consummation of such Major Transaction, all
of the holder’s Notes then outstanding by delivering written notice thereof via
facsimile and overnight courier (“Notice of Prepayment at Option of Holder Upon
Major Transaction”) to the Company, which Notice of Prepayment at Option of
Holder Upon Major Transaction shall indicate (i) the number of Notes that such
holder is electing to prepay and (ii) the applicable Major Transaction
Prepayment Price, as calculated pursuant to Section 3.6(b) above.

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                              (g)               Mechanics of Prepayment at
Option of Holder Upon Triggering Event. Within one (1) business day after the
occurrence of a Triggering Event, the Company shall deliver written notice
thereof via facsimile and overnight courier (“Notice of Triggering Event”) to
each holder of the Notes. At any time after the earlier of a holder’s receipt of
a Notice of Triggering Event and such holder becoming aware of a Triggering
Event, any holder of this Note may require the Company to prepay all of the
Notes on a pro rata basis by delivering written notice thereof via facsimile and
overnight courier (“Notice of Prepayment at Option of Holder Upon Triggering
Event”) to the Company, which Notice of Prepayment at Option of Holder Upon
Triggering Event shall indicate (i) the amount of the Note that such holder is
electing to have prepaid and (ii) the applicable Triggering Event Prepayment
Price, as calculated pursuant to Section 3.6(c) above. A holder shall only be
permitted to require the Company to prepay the Note pursuant to Section 3.6
hereof for the greater of a period of ten (10) days after receipt by such holder
of a Notice of Triggering Event or for so long as such Triggering Event is
continuing.

                              (h)               Payment of Prepayment Price.
Upon the Company’s receipt of a Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or a Notice(s) of Prepayment at Option of Holder Upon Major
Transaction from any holder of the Notes, the Company shall immediately notify
each holder of the Notes by facsimile of the Company’s receipt of such Notice(s)
of Prepayment at Option of Holder Upon Triggering Event or Notice(s) of
Prepayment at Option of Holder Upon Major Transaction and each holder which has
sent such a notice shall promptly submit to the Company such holder’s
certificates representing the Notes which such holder has elected to have
prepaid. The Company shall deliver the applicable Triggering Event Prepayment
Price, in the case of a prepayment pursuant to Section 3.6(i), to such holder
within five (5) business days after the Company’s receipt of a Notice of
Prepayment at Option of Holder Upon Triggering Event and, in the case of a
prepayment pursuant to Section 3.(f), the Company shall deliver the applicable
Major Transaction Prepayment Price immediately prior to the consummation of the
Major Transaction; provided that a holder’s original Note shall have been so
delivered to the Company; provided further that if the Company is unable to
prepay all of the Notes to be prepaid, the Company shall prepay an amount from
each holder of the Notes being prepaid equal to such holder’s pro-rata amount
(based on the number of Notes held by such holder relative to the number of
Notes outstanding) of all Notes being prepaid. If the Company shall fail to
prepay all of the Notes submitted for prepayment (other than pursuant to a
dispute as to the arithmetic calculation of the Prepayment Price), in addition
to any remedy such holder of the Notes may have under this Note and the Purchase
Agreement, the applicable Prepayment Price payable in respect of such Notes not
prepaid shall bear interest at the rate of two percent (2%) per month (prorated
for partial months) until paid in full. Until the Company pays such unpaid
applicable Prepayment Price in full to a holder of the Notes submitted for
prepayment, such holder shall have the option (the “Void Optional Prepayment
Option”) to, in lieu of prepayment, require the Company to promptly return to
such holder(s) all of the Notes that were submitted for prepayment by such
holder(s) under this Section 3.6 and for which the applicable Prepayment Price
has not been paid, by sending written notice thereof to the Company via
facsimile (the “Void Optional Prepayment Notice”). Upon the Company’s receipt of
such Void Optional Prepayment Notice(s) and prior to payment of the full
applicable Prepayment Price to such holder, (i) the Notice(s) of Prepayment at
Option of Holder Upon Triggering Event or the Notice(s) of Prepayment at Option
of Holder Upon Major Transaction, as the case may be, shall be null and void
with respect to those Notes submitted for prepayment and for which the
applicable Prepayment Price has not been paid, (ii) the Company shall
immediately return any Notes submitted to the Company by each holder for
prepayment under this Section 3.6(h) and for which the applicable Prepayment
Price has not been paid and (iii) the Conversion Price of such returned Notes
shall be adjusted to the lesser of (A) the Conversion Price as in effect on the
date on which the Void Optional Prepayment Notice(s) is delivered to the Company
and (B) the lowest Closing Bid Price during the period beginning on the date on
which the Notice(s) of Prepayment of Option of Holder Upon Major Transaction or
the Notice(s) of Prepayment at Option of Holder Upon Triggering Event, as the
case may be, is delivered to the Company and ending on the date on which the
Void Optional Prepayment Notice(s) is delivered to the Company; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect. A holder’s delivery of a Void Optional
Prepayment Notice and exercise of its rights following such notice shall not
effect the Company’s obligations to make any payments which have accrued prior
to the date of such notice. Payments provided for in this Section 3.6 shall have
priority to payments to other stockholders in connection with a Major
Transaction.

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                              (i)               Company Prepayment Option upon
Major Transaction. Upon the consummation of a Major Transaction, the Company may
prepay in cash all or any portion of the outstanding principal amount of this
Note together with all accrued and unpaid interest thereon upon at least thirty
(30) days prior written notice to the Holder (the “Company’s Prepayment Notice”)
at a price equal to one hundred twenty percent (120%) of the Outstanding Balance
plus any accrued but unpaid interest (the “Company’s Prepayment Price”);
provided, however, that if a holder has delivered a Conversion Notice to the
Company or delivers a Conversion Notice within such thirty (30) day period
following delivery of the Company’s Prepayment Notice, the principal amount of
the Notes plus any accrued but unpaid interest designated to be converted may
not be prepaid by the Company and shall be converted in accordance with Section
3.3 hereof; provided further that if during the period between delivery of the
Company’s Prepayment Notice and the Company’s Prepayment Date (as defined
below), a holder shall become entitled and elects to deliver a Notice of
Prepayment at Option of Holder Upon Major Transaction or Notice of Prepayment at
Option of Holder upon Triggering Event, then such rights of the holders shall
take precedence over the previously delivered Company Prepayment Notice if the
holder so elects. The Company’s Prepayment Notice shall state the date of
prepayment which date shall be the date of the consummation of the Major
Transaction (the “Company’s Prepayment Date”), the Company’s Prepayment Price
and the principal amount of Notes plus any accrued but unpaid interest to be
prepaid by the Company. The Company shall deliver the Company’s Prepayment Price
on the Company’s Prepayment Date, provided, that if the holder(s) delivers a
Conversion Notice before the Company’s Prepayment Date, then the portion of the
Company’s Prepayment Price which would be paid to prepay the Notes covered by
such Conversion Notice shall be returned to the Company upon delivery of the
Common Stock issuable in connection with such Conversion Notice to the
holder(s). On the Company’s Prepayment Date, the Company shall pay the Company’s
Prepayment Price, subject to any adjustment pursuant to the immediately
preceding sentence, to the holder(s) on a pro rata basis. If the Company fails
to pay the Company’s Prepayment Price by the third (3rd) business day after the
Company’s Prepayment Date, the prepayment will be declared null and void and the
Company shall lose its right to serve a Company’s Prepayment Notice pursuant to
this Section 3.6(i) in the future. Notwithstanding the foregoing to the
contrary, the Company may effect a prepayment pursuant to this Section 3.6(i)
only if trading in the Common Stock shall not have been suspended by the
Securities and Exchange Commission or the Nasdaq SmallCap Market (or other
exchange or market on which the Common Stock is trading), and and the Company is
in material compliance with the terms and conditions of this Note and the other
Transaction Documents.

                              Section 3.7               Inability to Fully
Convert.

                              (a)               Holder’s Option if Company
Cannot Fully Convert. If, upon the Company’s receipt of a Conversion Notice, the
Company cannot issue shares of Common Stock for any reason, including, without
limitation, because the Company (w) does not have a sufficient number of shares
of Common Stock authorized and available, or (x) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities from issuing all of the Common Stock which
is to be issued to the Holder pursuant to a Conversion Notice, then the Company
shall issue as many shares of Common Stock as it is able to issue in accordance
with the Holder’s Conversion Notice and, with respect to the unconverted portion
of this Note, the Holder, solely at Holder’s option, can elect to:

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                                                 (i)               require the
Company to prepay that portion of this Note for which the Company is unable to
issue Common Stock in accordance with the Holder’s Conversion Notice (the
“Mandatory Prepayment”) at a price per share equal to the Triggering Event
Prepayment Price as of such Conversion Date (the “Mandatory Prepayment Price”);

                                                 (ii)              void its
Conversion Notice and retain or have returned, as the case may be, this Note
that was to be converted pursuant to the Conversion Notice (provided that the
Holder’s voiding its Conversion Notice shall not effect the Company’s
obligations to make any payments which have accrued prior to the date of such
notice).

In the event a Holder shall elect to convert any portion of its Notes as
provided herein, the Company cannot refuse conversion based on any claim that
such Holder or anyone associated or affiliated with such Holder has been engaged
in any violation of law, violation of an agreement to which such Holder is a
party or for any reason whatsoever, unless, an injunction from a court, on
notice, restraining and or adjoining conversion of all or of said Notes shall
have been issued and the Company posts a surety bond for the benefit of such
Holder in an amount equal to 130% of the principal amount of the Notes the
Holder has elected to convert, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder in the event it obtains judgment.

                              (b)               Mechanics of Fulfilling Holder’s
Election. The Company shall immediately send via facsimile to the Holder, upon
receipt of a facsimile copy of a Conversion Notice from the Holder which cannot
be fully satisfied as described in Section 3.7(a) above, a notice of the
Company’s inability to fully satisfy the Conversion Notice (the “Inability to
Fully Convert Notice”). Such Inability to Fully Convert Notice shall indicate
(i) the reason why the Company is unable to fully satisfy such holder’s
Conversion Notice, (ii) the amount of this Note which cannot be converted and
(iii) the applicable Mandatory Prepayment Price. The Holder shall notify the
Company of its election pursuant to Section 3.7(a) above by delivering written
notice via facsimile to the Company (“Notice in Response to Inability to
Convert”).

                              (c)               Payment of Prepayment Price. If
the Holder shall elect to have its Notes prepaid pursuant to Section 3.7(a)(i)
above, the Company shall pay the Mandatory Prepayment Price to the Holder within
thirty (30) days of the Company’s receipt of the Holder’s Notice in Response to
Inability to Convert, provided that prior to the Company’s receipt of the
Holder’s Notice in Response to Inability to Convert the Company has not
delivered a notice to the Holder stating, to the satisfaction of the Holder,
that the event or condition resulting in the Mandatory Prepayment has been cured
and all Conversion Shares issuable to the Holder can and will be delivered to
the Holder in accordance with the terms of this Note. If the Company shall fail
to pay the applicable Mandatory Prepayment Price to the Holder on a timely basis
as described in this Section 3.7(c) (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Prepayment Price), in
addition to any remedy the Holder may have under this Note and the Purchase
Agreement, such unpaid amount shall bear interest at the rate of two percent
(2%) per month (prorated for partial months) until paid in full. Until the full
Mandatory Prepayment Price is paid in full to the Holder, the Holder may (i)
void the Mandatory Prepayment with respect to that portion of the Note for which
the full Mandatory Prepayment Price has not been paid, (ii) receive back such
Note, and (iii) require that the Conversion Price of such returned Note be
adjusted to the lesser of (A) the Conversion Price as in effect on the date on
which the Holder voided the Mandatory Prepayment and (B) the lowest Closing Bid
Price during the period beginning on the Conversion Date and ending on the date
the Holder voided the Mandatory Prepayment.

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                              (d)               Pro-rata Conversion and
Prepayment. In the event the Company receives a Conversion Notice from more than
one holder of the Notes on the same day and the Company can convert and prepay
some, but not all, of the Notes pursuant to this Section 3.7, the Company shall
convert and prepay from each holder of the Notes electing to have its Notes
converted and prepaid at such time an amount equal to such holder’s pro-rata
amount (based on the principal amount of the Notes held by such holder relative
to the principal amount of the Notes outstanding) of all the Notes being
converted and prepaid at such time.

                              Section 3.8               No Rights as
Shareholder. Nothing contained in this Note shall be construed as conferring
upon the Holder, prior to the conversion of this Note, the right to vote or to
receive dividends or to consent or to receive notice as a shareholder in respect
of any meeting of shareholders for the election of directors of the Company or
of any other matter, or any other rights as a shareholder of the Company.

ARTICLE IV

MISCELLANEOUS

                               Section 4.1               Notices. Any notice,
demand, request, waiver or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery by
telex (with correct answer back received), telecopy or facsimile at the address
or number designated in the Purchase Agreement (if delivered on a business day
during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The Company will give written notice to
the Holder at least ten (10) days prior to the date on which the Company takes a
record (x) with respect to any dividend or distribution upon the Common Stock,
(y) with respect to any pro rata subscription offer to holders of Common Stock
or (z) for determining rights to vote with respect to any Organic Change,
dissolution, liquidation or winding-up and in no event shall such notice be
provided to such holder prior to such information being made known to the
public. The Company will also give written notice to the Holder at least ten
(10) days prior to the date on which any Organic Change, dissolution,
liquidation or winding-up will take place and in no event shall such notice be
provided to the Holder prior to such information being made known to the public.

                               Section 4.2               Governing Law. This
Note shall be governed by and construed in accordance with the internal laws of
the State of Utah, without giving effect to any of the conflicts of law
principles which would result in the application of the substantive law of
another jurisdiction. This Note shall not be interpreted or construed with any
presumption against the party causing this Note to be drafted.

                               Section 4.3               Headings. Article and
section headings in this Note are included herein for purposes of convenience of
reference only and shall not constitute a part of this Note for any other
purpose.

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                               Section 4.4               Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief. The
remedies provided in this Note shall be cumulative and in addition to all other
remedies available under this Note, at law or in equity (including, without
limitation, a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a holder’s
right to pursue actual damages for any failure by the Company to comply with the
terms of this Note. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable and material harm to the Holder and
that the remedy at law for any such breach may be inadequate. Therefore the
Company agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available rights and
remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.

                               Section 4.5               Enforcement Expenses.
The Company agrees to pay all costs and expenses of enforcement of this Note,
including, without limitation, reasonable attorneys’ fees and expenses.

                               Section 4.6               Binding Effect. The
obligations of the Company and the Holder set forth herein shall be binding upon
the successors and assigns of each such party, whether or not such successors or
assigns are permitted by the terms hereof.

                               Section 4.7               Amendments. This Note
may not be modified or amended in any manner except in writing executed by the
Company and the Holder.

                               Section 4.8               Compliance with
Securities Laws. The Holder of this Note acknowledges that this Note is being
acquired solely for the Holder’s own account and not as a nominee for any other
party, and for investment, and that the Holder shall not offer, sell or
otherwise dispose of this Note. This Note and any Note issued in substitution or
replacement therefor shall be stamped or imprinted with a legend in
substantially the following form:

“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE COMPANY OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO
THE COMPANY THAT THIS NOTE MAY BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS.”

                               Section 4.9               Consent to
Jurisdiction. Each of the Company and the Holder (i) hereby irrevocably submits
to the exclusive jurisdiction of the State of Utah for the purposes of any suit,
action or proceeding arising out of or relating to this Note and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and the
Holder consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for notices to
it under the Purchase Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 4.9 shall affect or limit any right to serve process in any other manner
permitted by law. Each of the Company and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Note shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party.

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                               Section 4.10               Parties in Interest.
This Note shall be binding upon, inure to the benefit of and be enforceable by
the Company, the Holder and their respective successors and permitted assigns.

                               Section 4.11               Failure or Indulgence
Not Waiver. No failure or delay on the part of the Holder in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.

                               Section 4.12              Company Waivers. Except
as otherwise specifically provided herein, the Company and all others that may
become liable for all or any part of the obligations evidenced by this Note,
hereby waive presentment, demand, notice of nonpayment, protest and all other
demands’ and notices in connection with the delivery, acceptance, performance
and enforcement of this Note, and do hereby consent to any number of renewals of
extensions of the time or payment hereof and agree that any such renewals or
extensions may be made without notice to any such persons and without affecting
their liability herein and do further consent to the release of any person
liable hereon, all without affecting the liability of the other persons, firms
or Company liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY
JURY.

                               (a)               No delay or omission on the
part of the Holder in exercising its rights under this Note, or course of
conduct relating hereto, shall operate as a waiver of such rights or any other
right of the Holder, nor shall any waiver by the Holder of any such right or
rights on any one occasion be deemed a waiver of the same right or rights on any
future occasion.

                               (b)              THE COMPANY ACKNOWLEDGES THAT
THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO
THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND
HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS
SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.

                               Section 4.13               Payment of Collection
Enforcement and Other Costs. If (a) this Note is placed in the hands of an
attorney for collection or enforcement prior to commencing legal proceedings, or
is collected or enforced through any legal proceeding, or the Holder otherwise
takes action to collect amounts due under this Note or to enforce the provisions
of this Note; or (b) there occurs any bankruptcy, reorganization, receivership
of the Company or other proceedings affecting Company creditors’ rights and
involving a claim under this Note; then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
without limitation, attorneys’ fees and disbursements. The Company expressly
acknowledges and agrees that no amounts due under this Note shall be affected,
or limited, by the fact that the purchase price paid for this Note was less than
the original Outstanding Balance.

[Remainder of Page Intentionally Left; Signature Page to Follow]

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               IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the date set forth above.

LITHIUM EXPLORATION GROUP, INC.

  By:   [sign1.jpg]   Name: Alexander Walsh   Title: CEO

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EXHIBIT A

WIRE INSTRUCTIONS

Payee: Lithium Exploration Group

Bank: JP Morgan Chase

Address: 3200 N Hayden Road, Suite 235, Scottsdale, Arizona 85251

Bank No.: 122100024

Account No.: 943483230

Account Name: Lithium Exploration Group, Inc.

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FORM OF

NOTICE OF CONVERSION

(To be Executed by the Registered Holder in order to Convert the Note)

The undersigned hereby irrevocably elects to convert $ ________________of the
principal amount of the above Note No. ___ into shares of Common Stock of
Lithium Exploration Group, Inc. according to the conditions hereof, as of the
date written below.

Date of Conversion:
_______________________________________________________________________________________
Applicable Conversion Price:
________________________________________________________________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: ___________________________

Signature:         
__________________________________________________________________________________________
  Print Name:      
__________________________________________________________________________________________
 
Address:          ___________________________________________________________________________________________
                                                   
___________________________________________________________________________________________

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