Lithium Exploration Group, Inc.: Exhibit 10.86 - Filed by newsfilecorp.com





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. 
10% OID Convertible
Promissory Note 
Due December 1, 2016 

	December 1, 2015 
	               
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                       USD $18,000
    


For value received, Lithium Exploration Group, Inc., a
Nevada corporation (the "Company"), hereby promises to pay to the order of
VES Investment Trust (together with its successors, representatives, and
permitted assigns, the "Holder"), in accordance with the terms hereinafter
provided, up to an aggregate of $18,000 (eighteen thousand dollars) (the
"Principal Amount"), which includes the aggregate principal sum of
$15,000 (fifteen thousand dollars) advanced by the Holder, $1,500 Original Issue
Discount incurred by the Holder, and $1,500 legal fees. The Principal Amount
outstanding shall be due and payable on December 1, 2016.

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 

Section 1.1     Purchase Agreement.
This Note has been executed and delivered pursuant to the Security Purchase
Agreement dated as of December 1, 2015 (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. 

(a)     Beginning on the issuance date of
this Note (the "Issuance Date"), the outstanding principal balance of this Note
shall bear interest at a rate per annum equal to 10 percent (10%) accruing on an
12 month basis, which shall consist of the pre-paid interest referred to above,
which may be converted to shares of the Company's common stock, par value $0.001
per share (the "Common Stock") at the option of the Holder on the same terms as
the Note. 

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Section 1.3     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 Nevada, 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 1.4     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 1.5     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 of principal outstanding on the date such payment is due
hereunder; 

(b)     the Company shall fail to make any
payment of interest in shares of Common Stock for a period of three (3) days
after the date such interest is due; 

(c)     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 Small Cap 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; 

(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; 

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(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 $50,000 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 perm it 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; or 

(I)     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. 

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 (I), the outstanding principal balance and
interest hereunder shall be automatically due and payable and (ii) Sections 2.1
(a)-(j) and 2.l (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. 

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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 the any outstanding Principal Amount of this Note plus all
accrued and unpaid interest to convert into a number of fully paid and
non-assessable 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. 

(B)         
Conversion Limitations; Holder's Restriction on Conversion. The
Company shall not effect any conversion of this Note, and the Holder shall not
have the right to convert any portion of this Note, to the extent that after
giving effect to such conversion, the Holder (together with the Holder's
affiliates), as set forth on the applicable Conversion Notice, would
beneficially own in excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such conversion. 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 Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder or
any of its affiliates and (B) Exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any other Notes or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section, beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange Act. To the
extent that the limitation contained in this section applies, the determination
of whether this Note is convertible (in relation to other securities owned by
the Holder) and of which a portion of this Note is convertible shall be in the
sole discretion of such Holder. To ensure compliance with this restriction, the
Holder will be deemed to represent to the Company each time it delivers a
Conversion Notice that such Conversion Notice 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. For purposes of this Section, in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-Q or Form 10-K (or such related form), as the case
may be, (y) a more recent public announcement by the Company or (z) any other
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 the
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 Note, by the Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The provisions
of this Section may be waived by the Holder upon, at the election of the Holder,
not less than 61 days' prior notice to the Company, and the provisions of this
Section shall continue to apply until such 61st day (or such later date, as
determined by the Holder, as may be specified in such notice of waiver). 

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Section 3.2     Conversion Price.

(a)     The term "Conversion Price" shall
  mean a 3 5 % discount to the lowest s a l e 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. I n 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. l 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 OTC 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. lf 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. 

(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 l
0% 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 aggregate principal
amount of the Note requested to be converted for the first five (5) Trading Days
after the Delivery Date and (ii) 2% of the aggregate principal amount of the
Note 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. 

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(c)     ln 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 multi plying (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. 

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 l3(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. 

6 




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. 

(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. 

7 




(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.

8 




(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 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 exercisable
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 i n 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, (vii) the payment of any accrued interest in shares of Common
Stock pursuant to this Note. 

9 




(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 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, 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 i n 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 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 three hundred percent (300%) of the number of shares of Common Stock for
which this Note and all interest accrued thereon are at any time convertible.
The Company shall, from time to time in accordance with Nevada 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) . 

10 




(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, i n 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 i n Sections 2.1 (a)-(j)) and 2.1
(m)- (o) hereof, the Holder shall have the right, at such Holder's option, to
require the Company to prepay in cash all or a portion of this Note at a price
equal to one hundred f i f t y percent (150%) of the aggregate principal amount
of this Note plus all accrued and unpaid interest applicable at the time of such
request (the "Event of Default Prepayment Price"). Nothing i n 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 f i f t y percent (150%) of the aggregate principal amount
of this Note 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 f i f t y percent (150%) of the aggregate principal amount of this Note
plus all accrued and un paid 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 aggregate principal amount of this Note 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"). 

(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 

11 




(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 l 2(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. 

(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. 

12 




(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 3.6(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. 

13 




(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 fifty percent (150%) of
the aggregate principal amount of this Note 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 i n
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: 

(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). 

14 




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 i n 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 i n 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. 

(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. 

15 




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 Nevada, 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. 

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. 

16 




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 many 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 Nevada 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. 

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 4.1 1     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. 

17 




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 TRlAL 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 APPLICA BLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AN D HEA R
ING 

18 




WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS
SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. 

	 	LITHIUM EXPLORATION GROUP,
      INC. 
	 	 
	 	  	  
	 	By: 	 	 
    
	 		Name: 	Alexander Walsh 
	 		Title: 	Chief Executive Officer







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. (the "Company") 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: