exh10-2_debenture.htm


     

    
      

      

    

     

     

     

     

     

     

     

     

     

    EXHIBIT
      10.2

     

    FORM
      OF DEBENTURE

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    


                                                                                                                                              EXHIBIT
      A

    


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

    


    Original
      Issue Date: November __, 2007

    Original
      Conversion Price (subject to adjustment herein):
$0.15

    


    $_______________

    


    


    SERIES
      A 8.5% CONVERTIBLE DEBENTURE

    DUE
      NOVEMBER __, 2012

     

    THIS
      SERIES A 8.5% CONVERTIBLE
      DEBENTURE is one of a series of duly authorized and validly issued Series A
      8.5%
      Convertible Debentures of PetroHunter Energy Corporation, a Maryland corporation
      (the “Company”), having its principal place of business at
­­­­­­­­­­­­­­­–1875
      Lawrence Street, Suite 1400, Denver, Colorado 80202, designated as its Series
      A
      8.5% Convertible Debenture due November __, 2012 (this debenture, the
“Debenture” and, collectively with the other such series of debentures,
      the “Debentures”).

    


    FOR
      VALUE
      RECEIVED, the Company promises to pay to ________________________ or its
      registered assigns (the “Holder”), or shall have paid pursuant to the
      terms hereunder, the principal sum of $_________ on November __, 2012 (the
      “Maturity Date”) or such earlier date as this Debenture is required or
      permitted to be repaid as provided hereunder, and to pay interest to the Holder
      on the aggregate unconverted and then outstanding principal amount of this
      Debenture in accordance with the provisions hereof.  This Debenture is
      subject to the following additional provisions:

     

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

    


    
      
         

      

      
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    “Alternate
      Consideration” shall have the meaning set forth in Section
      5(d).

     

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

     

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

     

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

     

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

     

     

    
      
         

      

      
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    those
      individuals who are serving as members of the board of directors on any date
      whose nomination to the board of directors was approved by a majority of the
      members of the board of directors who are members on the date hereof), or (v)
      the execution by the Company of an agreement to which the Company  is
      a party or by which it is bound, providing for any of the events set forth
      in
      clauses (i) through (iv) above.

     

    “Common
      Stock” means the common stock, par value $0.001 per share, of the Company
      and stock of any other class of securities into which such securities may
      hereafter be reclassified or changed into.

     

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

     

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

     

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

     

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

     

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

     

    “Eligibility
      Conditions” shall have the meaning set forth in Section 6(a).

     

     “Equity
      Conditions” means, during the period in question, (i) the Company shall have
      duly honored all conversions and redemptions scheduled to occur or occurring
      by
      virtue of one or more Notices of Conversion of the Holder, if any, (ii) the
      Company shall have paid all liquidated damages and other amounts owing to the
      Holder in respect of this Debenture, (iii) there is an effective Registration
      Statement pursuant to which the Holder is permitted to utilize the prospectus
      thereunder to resell all of the shares issuable pursuant to the Transaction
      Documents (and the Company believes, in good faith, that such effectiveness
      will
      continue uninterrupted for the foreseeable future), (iv) the Common Stock is
      trading on a Trading Market and all of the shares issuable pursuant to the
      Transaction Documents are listed or quoted for trading on such Trading Market
      (and the Company believes, in good faith, that trading of the Common Stock
      on a
      Trading Market will continue uninterrupted for the foreseeable future), (v)
      there is a sufficient number of authorized but unissued and otherwise unreserved
      shares of Common Stock for the issuance of all of the shares issuable pursuant
      to the Transaction Documents, (vi) there is no existing Event of Default or
      no
      existing event which, with the passage of time or the giving of notice, would
      constitute an Event of Default, (vii) the issuance of the shares in question
      (or, in the case of an Optional Redemption, the shares issuable upon conversion
      in full of the Optional Redemption Amount) to
      the Holder would not violate the limitations set forth in Section 4(c) herein,
      (viii) there has been no public announcement of a pending or proposed
      Fundamental Transaction or Change of Control Transaction that has not been
      consummated and (ix) the Holder is not in possession of any information provided
      by the Company that constitutes, or may constitute, material non-public
      information.

     

    
      
         

      

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

     

    “Exchange
      Act” means the Securities Exchange Act of 1934, as amended, and the rules
      and regulations promulgated thereunder.

     

    “Forced
      Conversion” shall have the meaning set forth in Section 6(c).

     

    “Forced
      Conversion Date” shall have the meaning set forth in Section
      6(c).

     

    “Forced
      Conversion Notice” shall have the meaning set forth in Section
      6(c).

     

    “Forced
      Conversion Notice Date” shall have the meaning set forth in Section
      6(c).

     

    “Fundamental
      Transaction” shall have the meaning set forth in Section 5(d).

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Optional
      Redemption Amount” means the sum of (i) 120% of the then outstanding
      principal amount of the Debenture, (ii) accrued but unpaid interest and (iii)
      all liquidated damages and other amounts due in respect of the
      Debenture.

     

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

     

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

     

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

     

    
      
         

      

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

     

    “Permitted
      Indebtedness” means an aggregate not to exceed $100,000,000 of (a) the
      Indebtedness existing on the Original Issue Date and set forth on Schedule
      3.1(z) attached to the Purchase Agreement and (b) lease obligations and
      purchase money indebtedness incurred in connection with the acquisition of
      capital assets and lease obligations with respect to newly acquired or leased
      assets.

     

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

     

     “Person”
      means an individual or corporation, partnership, trust, incorporated or
      unincorporated association, joint venture, limited liability company, joint
      stock company, government (or an agency or subdivision thereof) or other entity
      of any kind.

     

    “Purchase
      Agreement” means the Securities Purchase Agreement, dated as of November __,
      2007, among the Company and the original Holders, as amended, modified or
      supplemented from time to time in accordance with its terms.

     

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

     

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

     

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

     

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

     

    
      
         

      

      
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    “Subsidiary”
      shall have the meaning set forth in the Purchase Agreement.

     

    “Threshold
      Period” shall have the meaning set forth in Section 6(d).

     

    “Trading
      Day” means a day on which the principal Trading Market is open for
      business.

     

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

     

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

     

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

     

    Section
      2.       Interest.

     

    a)  Payment
      of Interest in Cash or Kind.  The Company shall pay interest to
      the Holder on the aggregate then unconverted and outstanding principal amount
      of
      this Debenture at the rate of 8.5% per annum, payable quarterly on January
      1,
      April 1, July 1 and October 1, beginning on the first such date after the
      Original Issue Date, on each Conversion Date (as to that principal amount then
      being converted), on each Optional Redemption Date (as to that principal amount
      then being redeemed) and on the Maturity Date (each such date, an “Interest
      Payment Date”) (if any Interest Payment Date is not a Business Day, then the
      applicable payment shall be due on the next succeeding Business Day), in cash
      or
      duly authorized, validly issued, fully paid and non-assessable shares of Common
      Stock at the Conversion Rate (the dollar amount to be paid in shares, the
“Interest Share Amount”) or a combination thereof; provided,
however, that payment in shares of Common Stock may only occur
      if (i) all
      of the Equity Conditions have been met (unless waived by the Holder in writing)
      during the 20 Trading Days immediately prior to the applicable Interest Payment
      Date  (the “Interest Notice Period”) and through and


     

     

    
      
         

      

      
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      including
        the date such shares of Common Stock are issued to the Holder, (ii) the Company
        shall have given the Holder notice in accordance with the notice requirements
        set forth below and (iii) as to such Interest Payment Date, prior to such
        Interest Notice Period (but not more than 5 Trading Days prior to the
        commencement of such Interest Notice Period), the Company shall have delivered
        to the Holder’s account with The Depository Trust Company a number of shares of
        Common Stock to be applied against such Interest Share Amount equal to the
        quotient of (x) the applicable Interest Share Amount divided by (y) the then
        Conversion Price (the “Interest Conversion Shares”).

    

     

    b)  Company’s
      Election to Pay Interest in Kind.  Subject to the terms and
      conditions herein, the decision whether to pay interest hereunder in cash,
      shares of Common Stock or a combination thereof shall be at the discretion
      of
      the Company.  Prior to the commencement of any Interest Notice Period,
      the Company shall deliver to the Holder a written notice of its election to
      pay
      interest hereunder on the applicable Interest Payment Date either in cash,
      shares of Common Stock or a combination thereof and the Interest Share Amount
      as
      to the applicable Interest Payment Date, provided that the Company may indicate
      in such notice that the election contained in such notice shall apply to future
      Interest Payment Dates until revised by a subsequent notice.  During
      any Interest Notice Period, the Company’s election (whether specific to an
      Interest Payment Date or continuous) shall be irrevocable as to such Interest
      Payment Date.  Subject to the aforementioned conditions, failure to
      timely deliver such written notice to the Holder shall be deemed an election
      by
      the Company to pay the interest on such Interest Payment Date in
      cash.  At any time the Company delivers a notice to the Holder of its
      election to pay the interest in shares of Common Stock, the Company shall timely
      file a prospectus supplement pursuant to Rule 424 disclosing such
      election.  The aggregate number of shares of Common Stock otherwise
      issuable to the Holder on an Interest Payment Date shall be reduced by the
      number of Interest Conversion Shares previously issued to the Holder in
      connection with such Interest Payment Date.

     

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

     

    
      
         

      

      
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    d)  Late
      Fee.  All overdue accrued and unpaid interest to be paid hereunder
      shall entail a late fee at an interest rate equal to the lesser of 18% per
      annum
      or the maximum rate permitted by applicable law (“Late Fees”) which shall
      accrue daily from the date such interest is due hereunder through and including
      the date of payment in full.  Notwithstanding anything to the contrary
      contained herein, if on any Interest Payment Date the Company has elected to
      pay
      accrued interest in the form of Common Stock but the Company is not permitted
      to
      pay accrued interest in Common Stock because it fails to satisfy the conditions
      for payment in Common Stock set forth in Section 2(a) herein, then, at the
      option of the Holder, the Company, in lieu of delivering either shares of Common
      Stock pursuant to this Section 2 or paying the regularly scheduled interest
      payment in cash, shall deliver, within three Trading Days of each applicable
      Interest Payment Date, an amount in cash equal to the product of (x) the number
      of shares of Common Stock otherwise deliverable to the Holder in connection
      with
      the payment of interest due on such Interest Payment Date multiplied by (y)
      the
      highest VWAP during the period commencing on the Interest Payment Date and
      ending on the Trading Day prior to the date such payment is made.  If
      any Interest Conversion Shares are issued to the Holder in connection with
      an
      Interest Payment Date and are not applied against an Interest Share Amount,
      then
      the Holder shall promptly return such excess shares to the Company.

     

    e)  Prepayment.  Except
      as otherwise set forth in this Debenture, the Company may not prepay any portion
      of the principal amount of this Debenture without the prior written consent
      of
      the Holder.

     

    Section
      3.        Registration of
      Transfers and Exchanges.

    


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

     

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

    


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

    


    Section
      4.        Conversion.

    


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

    

    


    b)  Conversion
      Price.  The conversion price in effect on any Conversion Date
      shall be equal to $0.15, subject to
      adjustment herein (the “Conversion Price”).

    


    c)  Holder’s
      Restriction on Conversion.  The Company shall not effect any
      conversion of this Debenture, and a Holder shall not have the right to convert
      any portion of this Debenture, to the extent that after giving effect to the
      conversion set forth on the applicable Notice of Conversion, such Holder
      (together with such Holder’s Affiliates, and any other person or entity acting
      as a group together with such Holder or any of such Holder’s Affiliates) would
      beneficially own in excess of the Beneficial Ownership Limitation (as defined
      below).  For purposes of the foregoing sentence, the number of shares of
      Common Stock beneficially owned by such Holder and its Affiliates shall include
      the number of shares of Common Stock issuable upon conversion of this Debenture
      with respect to which such determination is being made, but shall exclude the
      number of shares of Common Stock which are issuable upon (A) conversion of
      the
      remaining, unconverted principal amount of this Debenture beneficially owned
      by
      such Holder or any of its Affiliates and (B) exercise or conversion of the
      unexercised or unconverted portion of any other securities of the
      Company  subject to a limitation on conversion or exercise analogous
      to the limitation contained herein (including, without limitation, any other
      Debentures or the Warrants) beneficially owned by such Holder or any of its
      Affiliates.  Except as set forth in the preceding sentence, for purposes of
      this Section 4(c), beneficial ownership shall be calculated in accordance with
      Section 13(d) of the Exchange Act and the rules and regulations promulgated
      thereunder.  To the extent that the limitation contained in this
      Section 4(c) applies, the determination of whether this Debenture is convertible
      (in relation to other securities owned by such Holder together 

     

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

      with
        any
        Affiliates) and of which principal amount of this Debenture is convertible
        shall
        be in the sole discretion of such Holder, and the submission of a Notice
        of
        Conversion shall be deemed to be such Holder’s determination of whether this
        Debenture may be converted (in relation to other securities owned by such
        Holder
        together with any Affiliates) and which principal amount of this Debenture
        is
        convertible, in each case subject to such aggregate percentage limitations.
        To
        ensure compliance with this restriction, each Holder will be deemed to represent
        to the Company each time it delivers a Notice of Conversion that such Notice
        of
        Conversion has not violated the restrictions set forth in this paragraph
        and the
        Company shall have no obligation to verify or confirm the accuracy of such
        determination.  In addition, a determination as to any group status as
        contemplated above shall be determined in accordance with Section 13(d) of
        the
        Exchange Act and the rules and regulations promulgated
        thereunder.  For purposes of this Section 4(c), in determining the
        number of outstanding shares of Common Stock, a Holder may rely on the number
        of
        outstanding shares of Common Stock as stated in the most recent of the
        following: (A) the Company’s most recent Form 10-Q or Form 10-K, as the case may
        be; (B) a more recent public announcement by the Company; or (C) a more recent
        notice by the Company or the Company’s transfer agent setting forth the number
        of shares of Common Stock outstanding.  Upon the written or oral request of
        a Holder, the Company shall within two Trading Days confirm orally and in
        writing to such Holder the number of shares of Common Stock then
        outstanding.  In any case, the number of outstanding shares of Common Stock
        shall be determined after giving effect to the conversion or exercise of
        securities of the Company, including this Debenture, by such Holder or its
        Affiliates since the date as of which such number of outstanding shares of
        Common Stock was reported.  The “Beneficial Ownership
        Limitation” shall be 4.99% of the number of shares of the Common Stock
        outstanding immediately after giving effect to the issuance of shares of
        Common
        Stock issuable upon conversion of this Debenture held by the
        Holder.  The Beneficial Ownership Limitation provisions of this
        Section 4(c) may be waived by such Holder, at the election of such Holder,
        upon
        not less than 61 days’ prior notice to the Company, to change the Beneficial
        Ownership Limitation to 9.99% of the number of shares of the Common Stock
        outstanding immediately after giving effect to the issuance of shares of
        Common
        Stock upon conversion of this Debenture held by the Holder and the provisions
        of
        this Section 4(c) shall continue to apply.  Upon such a change by a
        Holder of the Beneficial Ownership Limitation from such 4.99% limitation
        to such
        9.99% limitation, the Beneficial Ownership Limitation may not be further
        waived
        by such Holder.  The provisions of this paragraph shall be construed
        and implemented in a manner otherwise than in strict conformity with the
        terms
        of this Section 4(c) to correct this paragraph (or any portion hereof) which
        may
        be defective or inconsistent with the intended Beneficial Ownership Limitation
        herein contained or to make changes or supplements necessary or desirable
        to
        properly give effect to such limitation.  The limitations contained in
        this paragraph shall apply to a successor holder of this
        Debenture.

    

     

    d)       
      Mechanics of Conversion

     

    i.  Conversion
      Shares Issuable Upon Conversion of Principal Amount.  The number
      of shares of Common Stock issuable upon a conversion 

     

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

      hereunder
        shall be determined by the quotient obtained by dividing (x) the outstanding
        principal amount of this Debenture to be converted by (y) the Conversion
        Price.

    

    


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

    


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

    


    iv.  Obligation
      Absolute; Partial Liquidated Damages.  The Company shall issue
      Conversion Shares or, if applicable, cash, upon a properly noticed
      conversion.  If the Company fails for any reason to deliver to the
      Holder such certificate or certificates pursuant to Section 4(d)(ii) by the
      third Trading Day after the Conversion Date, the Company shall pay to such
      Holder, in cash, as liquidated damages and not as a penalty, for each $1000
      of
      principal amount being converted, $10 per Trading Day (increasing to $20 per
      Trading Day on the fifth Trading Day after such liquidated damages begin to
      accrue) for each Trading Day after such third Trading Day until such
      certificates are delivered.    Nothing herein shall limit a
      Holder’s right to pursue actual damages or declare an Event of 

     

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

      Default
        pursuant to Section 8 hereof for the Company’s failure to deliver Conversion
        Shares within the period specified herein and such Holder shall have the
        right
        to pursue all remedies available to it hereunder, at law or in equity including,
        without limitation, a decree of specific performance and/or injunctive
        relief.  The exercise of any such rights shall not prohibit the Holder
        from seeking to enforce damages pursuant to any other Section hereof or under
        applicable law.

    

    


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

    


    vi.  Reservation
      of Shares Issuable Upon Conversion.  The Company covenants that it
      will at all times reserve and keep available out of its authorized and unissued
      shares of Common Stock for the sole purpose of issuance upon conversion of
      this
      Debenture and payment of interest on this Debenture, each as 

     

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

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

    

    


    vii.  Fractional
      Shares.  Upon a conversion hereunder the Company shall not be
      required to issue stock certificates representing fractions of shares of Common
      Stock, but may if otherwise permitted, make a cash payment in respect of any
      final fraction of a share based on the VWAP at such time.  If the
      Company elects not, or is unable, to make such a cash payment, the Holder shall
      be entitled to receive, in lieu of the final fraction of a share, 1 whole share
      of Common Stock.

    


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

    


    Section
      5.      Certain
      Adjustments.

    


    a)  Stock
      Dividends and Stock Splits.  If the Company, at any time while
      this Debenture is outstanding: (A) pays a stock dividend or otherwise makes
      a
      distribution or distributions payable in shares of Common Stock on shares of
      Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
      shall not include any shares of Common Stock issued by the Company upon
      conversion of, or payment of interest on, the Debentures); (B) subdivides
      outstanding shares of Common Stock into a larger number of shares; (C) combines
      (including by way of a reverse stock split) outstanding shares of Common Stock
      into a smaller number of shares; or (D) issues, in the event of a
      reclassification of shares of the Common Stock, any shares of capital stock
      of
      the Company, then the Conversion Price shall be multiplied by a fraction of
      which the numerator shall be the number of shares of Common Stock (excluding
      any
      treasury shares of the Company) outstanding immediately before such event and
      of
      which the denominator shall be the number of shares of Common Stock outstanding
      immediately 

     

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

      after
        such event.  Any adjustment made pursuant to this Section shall become
        effective immediately after the record date for the determination of
        stockholders entitled to receive such dividend or distribution and shall
        become
        effective immediately after the effective date in the case of a subdivision,
        combination or re-classification.

    

    


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

    


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

    


    d)  Fundamental
      Transaction.  If, at any time while this Debenture is outstanding,
      (A) the Company effects any merger or consolidation of the Company with or
      into
      another Person, (B) the Company effects any sale of all or substantially all
      of
      its assets in one transaction or a series of related transactions, (C) any
      tender offer or exchange offer (whether by the Company or another Person) is
      completed pursuant to which holders of Common Stock are permitted to tender
      or
      exchange their shares for other securities, cash or property, or (D) the Company
      effects any reclassification of the Common Stock or any compulsory share
      exchange pursuant to which the Common Stock 

     

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

      is
        effectively converted into or exchanged for other securities, cash or property
        (in any such case, a “Fundamental Transaction”), then, upon any
        subsequent conversion of this Debenture, the Holder shall have the right
        to
        receive, for each Conversion Share that would have been issuable upon such
        conversion immediately prior to the occurrence of such Fundamental Transaction,
        the same kind and amount of securities, cash or property as it would have
        been
        entitled to receive upon the occurrence of such Fundamental Transaction if
        it
        had been, immediately prior to such Fundamental Transaction, the holder of
        1
        share of Common Stock (the “Alternate Consideration”).  For
        purposes of any such conversion, the determination of the Conversion Price
        shall
        be appropriately adjusted to apply to such Alternate Consideration based
        on the
        amount of Alternate Consideration issuable in respect of 1 share of Common
        Stock
        in such Fundamental Transaction, and the Company shall apportion the Conversion
        Price among the Alternate Consideration in a reasonable manner reflecting
        the
        relative value of any different components of the Alternate
        Consideration.  If holders of Common Stock are given any choice as to
        the securities, cash or property to be received in a Fundamental Transaction,
        then the Holder shall be given the same choice as to the Alternate Consideration
        it receives upon any conversion of this Debenture following such Fundamental
        Transaction.  To the extent necessary to effectuate the foregoing
        provisions, any successor to the Company or surviving entity in such Fundamental
        Transaction shall issue to the Holder a new debenture consistent with the
        foregoing provisions and evidencing the Holder’s right to convert such debenture
        into Alternate Consideration.  The terms of any agreement pursuant to
        which a Fundamental Transaction is effected shall include terms requiring
        any
        such successor or surviving entity to comply with the provisions of this
        Section
        5(d) and insuring that this Debenture (or any such replacement security)
        will be
        similarly adjusted upon any subsequent transaction analogous to a Fundamental
        Transaction.

    

    


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

    


    f)  Notice
      to the Holder.

    


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

     

    ii.  Notice
      to Allow Conversion by Holder.  If (A) the Company shall declare a
      dividend (or any other distribution in whatever form) on the Common Stock,
      (B)
      the Company shall declare a special nonrecurring cash dividend on or a
      redemption of the Common Stock, (C) the Company shall authorize the granting
      to
      all holders of the Common Stock of rights or warrants to subscribe for or
      purchase any shares of capital stock of any class or of any rights, (D) the
      approval of any stockholders of the Company shall be required in connection
      with
      any 

     

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

      reclassification
        of the Common Stock, any consolidation or merger to which the Company is
        a
        party, any sale or transfer of all or substantially all of the assets of
        the
        Company, of any compulsory share exchange whereby the Common Stock is converted
        into other securities, cash or property or (E) the Company shall authorize
        the
        voluntary or involuntary dissolution, liquidation or winding up of the affairs
        of the Company, then, in each case, the Company shall cause to be filed at
        each
        office or agency maintained for the purpose of conversion of this Debenture,
        and
        shall cause to be delivered to the Holder at its last address as it shall
        appear
        upon the Debenture Register, at least 20 calendar days prior to the applicable
        record or effective date hereinafter specified, a notice stating (x) the
        date on
        which a record is to be taken for the purpose of such dividend, distribution,
        redemption, rights or warrants, or if a record is not to be taken, the date
        as
        of which the holders of the Common Stock of record to be entitled to such
        dividend, distributions, redemption, rights or warrants are to be determined
        or
        (y) the date on which such reclassification, consolidation, merger, sale,
        transfer or share exchange is expected to become effective or close, and
        the
        date as of which it is expected that holders of the Common Stock of record
        shall
        be entitled to exchange their shares of the Common Stock for securities,
        cash or
        other property deliverable upon such reclassification, consolidation, merger,
        sale, transfer or share exchange, provided that the failure to deliver such
        notice or any defect therein or in the delivery thereof shall not affect
        the
        validity of the corporate action required to be specified in such
        notice.  The Holder is entitled to convert this Debenture during the
        20-day period commencing on the date of such notice through the effective
        date
        of the event triggering such notice.

    

    


    Section
      6.     Redemption and Forced
      Conversion.

    


    a)  Optional
      Redemption at Election of Company.  Subject to the provisions of
      this Section 6, if at any time one year after the Original Issue Date the VWAP
      for at least 20 consecutive Trading Days exceeds 200% of the then Conversion
      Price with an average trading volume of 300,000 shares per day during that
      period, the Company may deliver a notice to the Holder (an “Optional
      Redemption Notice” and the date such notice is deemed delivered hereunder,
      the “Optional Redemption Notice Date”) of its irrevocable election to
      redeem some or all of the then outstanding principal amount of this Debenture
      for cash in an amount equal to the Optional Redemption Amount on the 20th Trading
      Day
      following the Optional Redemption Notice Date (such date, the “Optional
      Redemption Date” and such redemption, the “Optional
      Redemption”).  The Optional Redemption Amount is payable in full
      on the Optional Redemption Date.  The Company may only effect an
      Optional Redemption if on each Trading Day during the period commencing on
      the
      Optional Redemption Notice Date through to the Optional Redemption Date and
      through and including the date payment of the Optional Redemption Amount is
      actually made in full (i) each of the Equity Conditions shall have been met
      (unless waived in writing by the Holder) or (ii) the Conversion Shares are
      eligible for resale without restriction pursuant to Rule 144(k) (collectively,
      these conditions being referred to as the “Eligibility
      Conditions”).  If either of the Eligibility Conditions shall cease
      to be satisfied at any time during the 20 Trading Day period, then 

     

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

      the
        Holder may elect to nullify the Optional Redemption Notice by notice to the
        Company within 3 Trading Days after the first day on which any such Equity
        Condition has not been met (provided that if, by a provision of the Transaction
        Documents, the Company is obligated to notify the Holder of the non-existence
        of
        an Equity Condition, such notice period shall be extended to the third Trading
        Day after proper notice from the Company) in which case the Optional Redemption
        Notice shall be null and void, ab initio.  The
        Company covenants and agrees that it will honor all Notices of Conversion
        tendered from the time of delivery of the Optional Redemption Notice through
        the
        date all amounts owing thereon are due and paid in full.

    

    


    b)  Redemption
      Procedure.  The payment of cash or issuance of Common Stock, as
      applicable, pursuant to an Optional Redemption shall be payable on the Optional
      Redemption Date.  If any portion of the payment pursuant to an
      Optional Redemption shall not be paid by the Company by the applicable due
      date,
      interest shall accrue thereon at an interest rate equal to the lesser of 18%
      per
      annum or the maximum rate permitted by applicable law until such amount is
      paid
      in full.  Notwithstanding anything herein contained to the contrary,
      if any portion of the Optional Redemption Amount remains unpaid after such
      date,
      the Holder may elect, by written notice to the Company given at any time
      thereafter, to invalidate such Optional Redemption, abinitio,
      and, with respect to the Company’s failure to honor the Optional Redemption, the
      Company shall have no further right to exercise such Optional
      Redemption.  Notwithstanding anything to the contrary in this Section
      6, the Company’s determination to redeem in cash or its elections under Section
      6(b) shall be applied ratably among the Holders of Debentures.  The
      Holder may elect to convert the outstanding principal amount of the Debenture
      pursuant to Section 4 prior to actual payment in cash for any redemption under
      this Section 6 by the delivery of a Notice of Conversion to the
      Company.

    


    c)  Forced
      Conversion.  Notwithstanding anything herein to the contrary, if
      after the earlier of the Effective Date or the date on which the Conversion
      Shares are eligible for resale without restriction pursuant to Rule 144(k)
      (such
      date, the “144(k) Date”), the VWAP for at least 20 consecutive Trading
      Days, which period shall have commenced only after the earlier of the Effective
      Date or the 144(k) Date (such period the “Threshold Period”), exceeds
      200% of the then Conversion Price with an average trading volume of 300,000
      shares per day during that period, the Company may, within 1 Trading Day after
      the end of any such Threshold Period, deliver a written notice to the Holder
      (a
“Forced Conversion Notice” and the date such notice is delivered to the
      Holder, the “Forced Conversion Notice Date”) to cause the Holder to
      convert up to that part of the then outstanding principal amount of this
      Debenture equal to 10% of the average dollar trading volume of the Company’s
      Common Stock during any calendar month plus, if so specified in the Forced
      Conversion Notice, accrued but unpaid interest, liquidated damages and other
      amounts owing to the Holder under this Debenture, it being agreed that the
      “Conversion Date” for purposes of Section 4 shall be deemed to occur on the
      third Trading Day following the Forced Conversion Notice Date (such third
      Trading Day, the “Forced Conversion Date”).  The Company may
      not deliver a Forced Conversion Notice, and any Forced Conversion Notice
      delivered by the Company shall 

     

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

      not
        be
        effective, unless all of the Equity Conditions (except that, after the 144(k)
        Date, Equity Condition (iii) shall not be applicable in this Section 6(c))
        are
        met (unless waived in writing by the Holder) on each Trading Day occurring
        during the applicable Threshold Period through and including the later of
        the
        Forced Conversion Date and the Trading Day after the date such Conversion
        Shares
        pursuant to such conversion are delivered to the Holder.  Any Forced
        Conversion shall be applied ratably to all Holders based on their initial
        purchases of Debentures pursuant to the Purchase Agreement, provided that
        any
        voluntary conversions by a Holder shall be applied against such Holder’s
prorata allocation, thereby decreasing the aggregate amount
        forcibly converted hereunder if only a portion of this Debenture is forcibly
        converted.  For purposes of clarification, a Forced Conversion shall
        be subject to all of the provisions of Section 4, including, without limitation,
        the provision requiring payment of liquidated damages and limitations on
        conversions.

    

    


    Section
      7.       Negative
      Covenants.  As long as any portion of this Debenture remains
      outstanding, the Company shall not, and shall not permit any of its subsidiaries
      (whether or not a Subsidiary on the Original Issue Date) to, directly or
      indirectly:

    


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

    


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

    


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

    


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

    


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

    


    f)  enter
      into any transaction with any Affiliate of the Company which would be required
      to be disclosed in any public filing with the Commission, unless such
      transaction is made on an arm’s-length basis and expressly approved by a
      majority of the 

     

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

      disinterested
        directors of the Company (even if less than a quorum otherwise required for
        board approval); or

    

    


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

    


    Section
      8.       Events of
      Default.

    


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

    


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

    


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

    


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

    


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

    


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

    


    vi.  the
      Company or any Subsidiary shall default on any of its obligations under any
      mortgage, credit agreement or other facility, indenture agreement, factoring
      agreement or other instrument under which there may be 

     

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

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

    

    


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

    


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

    


    ix.  a
      Registration Statement shall not have been declared effective by the Commission
      on or prior to the 180th calendar
      day
      after the Closing Date;

    


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

    


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

    


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

    


    
      
         

      

      
        20

        
          

        

      

      
         

      

    

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

    


    Section
      9.       Miscellaneous.

     

    a)  Notices.  Any
      and all notices or other communications or deliveries to be provided by the
      Holder hereunder, including, without limitation, any Notice of Conversion,
      shall
      be in writing and delivered personally, by facsimile, or sent by a nationally
      recognized overnight courier service, addressed to the Company, at the address
      set forth above, facsimile number  (303) 572 8927, Attention: David E.
      Brody or such other facsimile number or address as the Company may specify
      for
      such purpose by notice to the Holder delivered in accordance with this Section
      9.  Any and all notices or other communications or deliveries to be
      provided by the Company hereunder shall be in writing and delivered personally,
      by facsimile, or sent by a nationally recognized overnight courier service
      addressed to each Holder at the facsimile number or address of such Holder
      appearing on the books of the Company, or if no such facsimile number or address
      appears, at the principal place of business of the Holder.  Any notice
      or other communication or deliveries hereunder shall be deemed given and
      effective on the earliest of (i) the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number specified
      in
      this Section 9 prior to 5:30 p.m. (New York City time), (ii) the date
      immediately following the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number specified in this Section
      9
      between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time)
      on
      any date, (iii) the second Business Day following the date of mailing, if sent
      by nationally recognized overnight courier service, or (iv) upon actual receipt
      by the party to whom such notice is required to be given.

    


    b)  Absolute
      Obligation.  Except as expressly provided herein, no provision of
      this Debenture shall alter or impair the obligation of the Company, which is
      absolute and unconditional, to pay the principal of, liquidated damages and
      accrued interest, as 

     

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

      applicable,
        on this Debenture at the time, place, and rate, and in the coin or currency,
        herein prescribed.  This Debenture is a direct debt obligation of the
        Company.  This Debenture ranks paripassu with all other
        Debentures now or hereafter issued under the terms set forth
        herein.

    

    


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

    


    d)  Governing
      Law.  All questions concerning the construction, validity,
      enforcement and interpretation of this Debenture shall be governed by and
      construed and enforced in accordance with the internal laws of the State of
      Colorado, without regard to the principles of conflict of laws
      thereof.  Each party agrees that all legal proceedings concerning the
      interpretation, enforcement and defense of the transactions contemplated by
      any
      of the Transaction Documents (whether brought against a party hereto or its
      respective Affiliates, directors, officers, shareholders, employees or agents)
      shall be commenced in the state and federal courts sitting in the City and
      County of Denver.  Each party hereto hereby irrevocably submits to the
      exclusive jurisdiction of the state and federal courts sitting in the City
      and
      County of Denver for the adjudication of any dispute hereunder or in connection
      herewith or with any transaction contemplated hereby or discussed herein
      (including with respect to the enforcement of any of the Transaction Documents),
      and hereby irrevocably waives, and agrees not to assert in any suit, action
      or
      proceeding, any claim that it is not personally subject to the jurisdiction
      of
      any such courts, that such suit, action or proceeding is improper or in an
      inconvenient venue for such proceeding.  Each party hereby irrevocably
      waives personal service of process and consents to process being served in
      any
      such suit, action or proceeding by mailing a copy thereof via registered or
      certified mail or overnight delivery (with evidence of delivery) to such party
      at the address in effect for notices to it under this Debenture and agrees
      that
      such service shall constitute good and sufficient service of process and notice
      thereof.  Nothing contained herein shall be deemed to limit in any way
      any right to serve process in any other manner permitted by applicable
      law.  Each party hereto hereby irrevocably waives, to the fullest
      extent permitted by applicable law, any and all right to trial by jury in any
      legal proceeding arising out of or relating to this Debenture or the
      transactions contemplated hereby.  If either party shall commence an
      action or proceeding to enforce any provisions of this Debenture, then the
      prevailing party in such action or proceeding shall be reimbursed by the other
      party for its attorneys fees and other costs and expenses incurred in the
      investigation, preparation and prosecution of such action or
      proceeding.

    


    e)  Waiver.  Any
      waiver by the Company or the Holder of a breach of any provision of this
      Debenture shall not operate as or be construed to be a waiver of any other
      breach of such provision or of any breach of any other provision of this
      Debenture.  The failure of the Company or the Holder to insist upon
      strict adherence to any term of 

     

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

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

    

    


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

    


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

    


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

    


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

    


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


    
      
         

      

      
        23

        
          

        

      

      
         

      

    


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

    


    
      	 	PETROHUNTER
              ENERGY CORPORATION	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ 	 
	 	 	Name:	 
	 	 	Title:	 
	 	 	 	 



      
        
           

        

        
          24

          
            

          

        

        
           

        

      

    

    ANNEX
      A

     

    NOTICE
      OF CONVERSION

    


    


    The
      undersigned hereby elects to
      convert principal under the Series A 8.5% Convertible Debenture due November
      __,
      2012 of PetroHunter Energy Corporation, a Maryland corporation (the
“Company”), into shares of common stock, par value $0.001 per share (the
“Common Stock”), of the Company according to the conditions hereof, as of
      the date written below.  If shares of Common Stock are to be issued in
      the name of a person other than the undersigned, the undersigned will pay all
      transfer taxes payable with respect thereto and is delivering herewith such
      certificates and opinions as reasonably requested by the Company in accordance
      therewith.  No fee will be charged to the holder for any conversion,
      except for such transfer taxes, if any.

    


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

    


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

    


    Conversion
      calculations:

    Date
      to
      Effect Conversion:

    


    Principal
      Amount of Debenture to be Converted:

    


    Payment
      of Interest in Common Stock __ yes  __ no

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

    


    Number
      of
      shares of Common Stock to be issued:

    


    


    Signature:

    


    Name:

    


    Address:

    



    
      
         

      

      
        25

        
          

        

      

      
         

      

    


    Schedule
      1

     

    CONVERSION
      SCHEDULE

    


    The
      Series A 8.5 Convertible Debentures due on November __, 2012 in the aggregate
      principal amount of $_____ are issued by PetroHunter Energy
      Corporation.  This Conversion Schedule reflects conversions made under
      Section 4 of the above referenced Debenture.

    


    Dated:

    


    


    
      	
               

              Date
                of Conversion

              (or
                for first entry, Original Issue Date)

            	
               

              Amount
                of Conversion

            	
               

              Aggregate
                Principal Amount Remaining Subsequent to Conversion

              (or
                original Principal Amount)

            	
               

              Company
                Attest

            
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 


    

    
 

     

    26