Naked Brand Group Inc. Exhibit10.2 - Filed by newsfilecorp.com






FORM OF SERIES A SENIOR SECURED CONVERTIBLE DEBENTURE


NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE
COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT
TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS
CONVERTIBLE DEBENTURE SHOULD CAREFULLY REVIEW THE TERMS OF THIS CONVERTIBLE
DEBENTURE, INCLUDING SECTIONS 3(c)(iii) AND 14(a) HEREOF. THE PRINCIPAL AMOUNT
REPRESENTED BY THIS CONVERTIBLE DEBENTURE AND, ACCORDINGLY, THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS CONVERTIBLE DEBENTURE.


♦[If resident in Canada, the following legend is applicable:
THE HOLDER OF THE SECURITIES REPRESENTED HEREBY MUST NOT TRADE THE SECURITIES IN
OR FROM A JURISDICTION OF CANADA UNLESS THE CONDITIONS IN SECTION 13 OF
MULTILATERAL INSTRUMENT 51-105 ISSUERS QUOTED IN THE U.S. OVER THE COUNTER
MARKETS ARE MET.] 

NAKED BRAND GROUP, INC. 

6% SENIOR SECURED CONVERTIBLE DEBENTURE 

	Issuance Date: _____________, 2014 	Original Principal Amount: U.S. $[♦]
  


     FOR VALUE RECEIVED, Naked
Brand Group, Inc., a Nevada corporation (the "Company" or
“Maker”), hereby promises to pay to the order of ___________ or its
registered assigns ("Holder") the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the "Principal") when due, whether
upon the Maturity Date (as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest
("Interest") on any outstanding Principal at the applicable Interest Rate
(as defined below) from the date set out above as the Issuance Date (the
"Issuance Date") until the same becomes due and payable, whether upon the
Maturity Date, or acceleration, conversion, redemption or otherwise (in each
case in accordance with the terms hereof). This 6% Senior Secured Convertible
Debenture (including any 6% Senior Secured Convertible Debenture issued in
exchange, transfer or replacement hereof, this ("Convertible Debenture")
is one of an issue of 6% Senior Secured Convertible Debentures issued pursuant
to the Subscription Agreement (as defined below) on the Initial Closing Date (as
defined below) (collectively, the "Other Convertible Debentures") and
such other 6% Senior Secured Convertible Debentures, if any, that have been
issued pursuant to the Subscription Agreement on one or more Additional Closing
Dates that is not the Issuance Date (collectively, the "Additional
Convertible Debenture"), and together with the Other Convertible Debentures,
the ("Convertible Debenture"). Certain capitalized terms used
herein are defined in Section 20. 

1 




     1.      PAYMENTS
OF PRINCIPAL. On ______________, 2017 (the “Maturity Date”), the
Company shall pay to the Holder an amount in cash representing all the
outstanding Principal, accrued and unpaid Interest and accrued and unpaid late
charges on such Principal and Interest. The Company may not prepay any portion
of the Convertible Debenture.

     2.      INTEREST;
INTEREST RATE. 

          (a)      Interest
on this Convertible Debenture shall commence accruing on the Issuance Date and
shall be computed on the basis of a 360-day year and twelve 30-day months, on
any outstanding Principal at the Interest Rate payable semi-annually beginning
from the first such semi-annually date after the Issuance Date, on each
conversion date (as to that principal amount then being converted) and on the
Maturity Date (each, an "Interest Date"). Interest shall be payable on
each Interest Date, to the Holder on the applicable Interest Date, in shares of
Common Stock ("Interest Shares") so long as there has been no Equity
Conditions Failure; provided however, that the Company may, at its option
following written notice to the Holder, pay Interest on any Interest Date in
cash ("Cash Interest") or in a combination of Cash Interest and Interest
Shares. The Company shall deliver a written notice (each, an "Interest
Election Notice") to each holder of the Convertible Debentures on or prior
to the Interest Notice Due Date (the date such notice is delivered to all of the
holder, the "Interest Notice Date") which notice (i) either (A) confirms
that Interest to be paid on such Interest Date shall be paid entirely in
Interest Shares or (B) elects to pay Interest as Cash Interest or a combination
of Cash Interest and Interest Shares and specifies the amount of Interest that
shall be paid as Cash Interest and the amount of Interest, if any, that shall be
paid in Interest Shares and (ii) if the Company is paying all or any portion of
Interest in Interest Shares, certifies that there has been no Equity Conditions
Failure. If an Equity Conditions Failure has occurred as of the Interest Notice
Date, then unless the Company has elected to pay such Interest as Cash Interest,
the Interest Election Notice shall indicate that unless the Holder waives the
Equity Conditions Failure, the Interest shall be paid as Cash Interest.
Notwithstanding anything herein to the contrary, if no Equity Conditions Failure
has occurred as of the Interest Notice Date but an Equity Conditions Failure
occurs at any time prior to the Interest Date, (A) the Company shall provide the
Holder a subsequent notice to that effect and (B) unless the Holder waives the
Equity Conditions Failure, the Interest shall be paid as Cash Interest. Interest
to be paid on an Interest Date in Interest Shares shall be paid in a number of
fully paid and non-assessable shares (rounded to the nearest whole share in
accordance herewith) of Common Stock equal to the quotient of (1) the amount of
Interest payable on such Interest Date less any related Cash Interest paid on
such Interest Date and (2) the Conversion Price in effect on the applicable
Interest Date. 

          (b)      Intentionally
Left Blank

          2





          (c)      Prior
to the payment of Interest on an Interest Date, Interest on this Convertible
Debenture shall accrue at the Interest Rate and be payable by way of inclusion
of the Interest in the Conversion Amount on each Conversion Date in accordance
herewith. From and after the occurrence and during the continuance of any Event
of Default, the Interest Rate shall automatically be increased to fifteen
percent (15.0%) . In the event that such Event of Default is subsequently cured,
the adjustment referred to in the preceding sentence shall cease to be effective
as of the calendar day immediately following the date of such cure; provided
that the Interest as calculated and unpaid at such increased rate during the
continuance of such Event of Default shall continue to apply to the extent
relating to the days after the occurrence of such Event of Default through and
including the date of such cure of such Event of Default. The Company shall pay
any and all stamp, issuance and similar taxes that may be payable with respect
to the issuance and delivery of Interest Shares. 

     3.      CONVERSION
OF CONVERTIBLE DEBENTURE. This Convertible Debenture shall be convertible
into validly issued, fully paid and non-assessable shares of Common Stock, on
the terms and conditions set forth in this Section 3. 

          (a)      Conversion
Right. Subject to the provisions of this Section 3, at any time the Holder
shall be entitled to convert a minimum of twenty-five percent (25%) of the
Original Principal Amount of this Convertible Debenture plus any accrued or
unpaid Interest and unpaid late charges (or such amount as is then outstanding)
into validly issued, fully paid and non-assessable shares of Common Stock in
accordance with this Section 3, at the Conversion Rate. Notwithstanding the
foregoing, the immediately preceding sentence shall not be applicable to a
Holder who purchased $250,000 or more aggregate principal amount of Convertible
Debentures. The Company shall not issue any fraction of a share of Common Stock
upon any conversion. If the issuance would result in the issuance of a fraction
of a share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
stamp, issuance and similar taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any Conversion Amount.


          (b)      Conversion
Rate. The number of shares of Common Stock issuable upon conversion of any
Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x)
such Conversion Amount by (y) the Conversion Price (the "Conversion
Rate"). For the purposes of this Convertible Debenture, the following terms
shall have the following meanings: 

     (i)      "Conversion
Amount" means the portion of the Principal to be converted, redeemed or
otherwise with respect to which this determination is being made, plus all
accrued and unpaid Interest with respect to such portion of the Principal and
accrued and unpaid late charges with respect to such portion of such Principal
and such Interest; and. 

     (ii)      "Conversion
Price" means, as of any Conversion Date or other date of determination (x)
$0.075 per share (subject to adjustment as provided herein). For the avoidance
of doubt, the Conversion Price shallbe appropriately adjusted for any stock
dividend, stock split, stock combination, reclassification or similar
transaction during the applicable calculation period. 

3 




(c) Mechanics of Conversion.


     (i)      Optional
Conversion. To convert any Conversion Amount into shares of Common Stock on
any date (each, a "Conversion Date"), the Holder shall deliver, pursuant
to Section 20, for receipt on or prior to 5:30 p.m., New York time, on such
date, a copy of an executed notice of conversion in the form attached hereto as
Exhibit I (the "Conversion Notice") to the Company and/or such
other person as the Company may from time to time direct. To effect conversions
hereunder, the Holder shall not be required to physically surrender this
Convertible Debenture to the Company unless the entire principal amount of this
Debenture, plus all accrued and unpaid interest thereon, has been so converted.
Conversion hereunder shall have the effect of lowering the outstanding principal
amount of this Convertible Debenture in an amount equal to the applicable
conversion. No later than three (3) Business Days after each conversion date
(the “Share Delivery Date”), Company shall cause to be delivered, to the Holder
a certificate or certificates representing the Conversion Shares representing a
number of Conversion Shares being acquired upon a conversion pursuant to the
Conversion Notice. On or after the six month anniversary of the original issue
date, if the Company is participant in the Deposit or Withdrawal at Custodian
system (DWAC) of the Depository Trust Company, the Company shall deliver any
certificate or certificates required to be delivered by the Company under this
Section 3(c) electronically through the Depository Trust Company or another
established clearing corporation performing similar functions. 

     (ii)      Intentionally
Left Blank 

     (iii)     Registration;
Book-Entry. The Company shall maintain a register (the "Register")
for the recordation of the names and addresses of the holders of the Convertible
Debentures and the principal amount of the Convertible Debentures held by such
holders (the "Registered Convertible Debentures"). The entries in the
Register shall be conclusive and binding for all purposes absent manifest error.
The Company and the holders of the Convertible Debentures shall treat each
Person whose name is recorded in the Register as the owner of a Convertible
Debenture for all purposes (including, without limitation, the right to receive
payments of Principal and Interest thereunder) notwithstanding notice to the
contrary. Subject to compliance with applicable securities laws, a Registered
Convertible Debenture may be assigned, transferred or sold in whole or in part
only by registration of such assignment or sale on the Register. Upon its
receipt of a written request to assign, transfer or sell all or part of any
Registered Convertible Debenture by the holder thereof, the Company shall record
the information contained therein in the Register and issue one or more new
Registered Convertible Debenture in the same aggregate principal amount as the
principal amount of the surrendered Registered Convertible Debenture to the
designated assignee or transferee pursuant herewith, provided that if the
Company does not so record an assignment, transfer or sale (as the case may be)
of all or part of any Registered Convertible Debenture within two (2) Business
Days of its receipt of such a request, then the Register shall be automatically
updated to reflect such assignment, transfer or sale (as the case may be).
Notwithstanding anything to the contrary set forth in this Section 3, following
conversion of any portion of this Convertible Debenture in accordance with the
terms hereof, the Holder shall not be required to physically surrender this
Convertible Debenture to the Company unless (A) the full Conversion Amount
represented by this Convertible Debenture is being converted (in which event
this Convertible Debenture shall be delivered to the Company following
conversion thereof as contemplated by Section 3(c)(i)) or (B) the Holder has
provided the Company with prior written notice (which notice may be included in
a Conversion Notice) requesting reissuance of this Convertible Debenture upon
physical surrender of this Convertible Debenture. The Holder and the Company
shall maintain records showing the Principal, Interest and late charges
converted and/or paid (as the case may be) and the dates of such conversions
and/or payments (as the case may be) or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Convertible Debenture upon conversion. 

4 




     (iv)      Pro
Rata Conversion; Disputes. In the event that the Company receives a
Conversion Notice from more than one holder of the Convertible Debentures for
the same Conversion Date and the Company can convert some, but not all, of such
portions of the Convertible Debentures submitted for conversion, the Company,
subject to Section 3(d), shall convert from each holder of the Convertible
Debentures electing to convert on such date, a pro rata amount of such holder's
portion of the Convertible Debentures submitted for conversion based on the
principal amount of the Convertible Debentures submitted for conversion on such
date by such holder relative to the aggregate principal amount of all of the
Convertible Debentures submitted for conversion on such date. In the event of a
dispute as to the number of shares of Common Stock issuable to the Holder in
connection with a conversion of this Convertible Debenture, the Company shall
issue to the Holder the number of shares of Common Stock not in dispute and
resolve such dispute in accordance herewith. 

          (d)      Limitations
on Conversions. Notwithstanding anything to the contrary contained in this
Convertible Debenture, this Convertible Debenture shall not be convertible by
the Holder hereof, and the Company shall not affect any conversion of this
Convertible Debenture or otherwise issue any shares of Common Stock pursuant
hereto, to the extent (but only to the extent) that after giving effect to such
conversion or other share issuance hereunder the Holder or any of its affiliates
would beneficially own in excess of 9.99% (the "Maximum Percentage") of
the Common Stock. To the extent the above limitation applies, the determination
of whether this Convertible Debenture shall be convertible (vis-à-vis other
convertible, exercisable or exchangeable securities owned by the Holder or any
of its Affiliates) and of which such securities shall be convertible,
exercisable or exchangeable (as among all such securities owned by the Holder
and its Affiliates) shall, subject to the Maximum Percentage limitation, be
determined on the basis of the first submission to the Company for conversion,
exercise or exchange (as the case may be). No prior inability to convert this
Convertible Debenture, or to issue shares of Common Stock, pursuant to this
paragraph shall have any effect on the applicability of the provisions of this
paragraph with respect to any subsequent determination of convertibility. For
purposes of this paragraph, beneficial ownership and all determinations and
calculations (including, without limitation, with respect to calculations of
percentage ownership) shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended (the ”1934 Act”) and the rules
and regulations promulgated thereunder. The provisions of this paragraph shall
be implemented in a manner otherwise than in strict conformity with the terms of
this paragraph to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Maximum Percentage limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to the Maximum Percentage limitation. The limitations contained in
this paragraph shall apply to a successor Holder of this Convertible Debenture.
The holders of Common Stock shall be third party beneficiaries of this paragraph
and the Company may not waive this paragraph without the consent of holders of a
majority of its Common Stock. For any reason at any time, upon the written or
oral request of the Holder, the Company shall within one (1) Business Day
confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding, including by virtue of any prior conversion or exercise of
convertible or exercisable securities into Common Stock, including, without
limitation, pursuant to this Convertible Debenture or securities issued pursuant
to the Subscription Agreement. By written notice to the Company, any Holder may
increase or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% specified in such notice; provided that (i) any such increase
will not be effective until the 61st day after such notice is delivered to the
Company, and (ii) any such increase or decrease will apply only to the Holder
sending such notice and not to any other holder of the Convertible Debentures.


5 




          (e)      Automatic
Conversions. Notwithstanding anything herein to the contrary the unconverted
principal amount of Convertible Debentures, any outstanding accrued and unpaid
interest and any unpaid late charges shall automatically convert into Conversion
Shares if the Automatic Conversion Conditions have been satisfied. For the
purposes of this paragraph, the Automatic Conversion Conditions are: (X) (i) the
closing of any underwritten public offering with aggregate proceeds to the
Company of at least $10,000,000 provided that valuation of the Company shall be
at least $50,000,000; or (ii) the VWAP of the Company’s common stock exceeds
$0.375 (subject to adjustment) per share for more than twenty (20) consecutive
Trading Days following the Initial Closing Date. 

          (f)      Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion.
In addition to any other rights available to the Holder, if after actual
receipt of an effective Conversion Notice the Company fails for any reason to
deliver to the Holder such certificate or certificates by the Share Delivery
Date pursuant to Section 3(c), and if after such Share Delivery Date the Holder
is required by its brokerage firm to purchase (in an open market transaction or
otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion relating to
such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to
the Holder (in addition to any other remedies available to or elected by the
Holder) the amount, if any, by which (x) the Holder’s total purchase price
(including any brokerage commissions) for the Common Stock so purchased exceeds
(y) the product of (1) the aggregate number of shares of Common Stock that the
Holder was entitled to receive from the conversion at issue multiplied by (2)
the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the
option of the Holder, either reissue (if surrendered) this Debenture in a
principal amount equal to the principal amount of the attempted conversion (in
which case such conversion shall be deemed rescinded) 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 3(c). 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 

6 




     4.      EVENT
OF DEFAULT. 

          (a)      “Event
of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it 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 the Principal, or the Interest, as and when the same
shall become due and payable, for which there will be no cure period; 

               (ii)      Maker
shall fail to observe or perform any obligation or shall breach any term or
provision of this Convertible Debenture (other than Section 3(c)(ii))and such
failure or breach shall not have been remedied within ten (10) business days
after the date on which notice of such failure or breach shall have been
delivered (other than those occurrences described in other provisions of this
Section 4 for which a different grace or cure period is specified, or for which
no cure period is specified and which constitute immediate Events of Default);


               (iii)      Maker
shall fail to observe or perform any of its material obligations owed to the
Holder or any other material covenant, agreement, representation or warranty
contained in, or otherwise commit any material breach hereunder or in any other
transaction document executed in connection herewith, including the Subscription
Agreement, and such failure or breach shall not have been remedied within ten
(10) business days after the date on which notice of such failure or breach
shall have been delivered (other than those occurrences described in other
provisions of this Section 4 for which a different grace or cure period is
specified, or for which no cure period is specified and which constitute
immediate Events of Default); 

7 




               (iv)      Maker
shall commence, or there shall be commenced against the Maker a case under any
applicable bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or the Maker commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Maker, or there is commenced against the
Maker any such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of thirty (30) days; or the Maker is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or the Maker suffers any appointment of any
custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of thirty (30) days; or the
Maker makes a general assignment for the benefit of creditors; or the Maker
shall fail to pay, or shall state that it is unable to pay, or shall be unable
to pay, its debts generally as they become due; or the Maker shall call a
meeting of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or the Maker shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Maker for the
purpose of effecting any of the foregoing; 

               (v)      Maker
shall default in any of its respective obligations under any of the Convertible
Debentures or any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness for
borrowed money or money due under any long term leasing or factoring arrangement
of the Maker, whether such indebtedness now exists or shall hereafter be created
and such default shall result in indebtedness aggregating more than $200,000
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable; or

               (vi)      except
in connection with the transactions effected in connection with the Subscription
Agreement, the Maker shall (a) be a party to any Change of Control Transaction
(as defined below), (b) agree to sell or dispose all or in excess of 50% of its
assets in one or more transactions (whether or not such sale would constitute a
Change of Control Transaction), (c) redeem or repurchase more than a de minimis
number of shares of Common Stock or other equity securities of the Maker, or (d)
make any distribution or declare or pay any dividends (in cash or other
property, other than common stock) on, or purchase, acquire, redeem, or retire
any of the Maker’s capital stock, of any class, whether now or hereafter
outstanding. For the purposes of this paragraph “Change of Control
Transaction” means the occurrence 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 1934 Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Maker, by contract
or otherwise) of in excess of 51% of the voting securities of the Maker, (ii) a
replacement at one time or over time of more than one-half of the members of the
Maker’s board of directors which is not approved by a majority of those
individuals who are members of the board of directors on the date hereof (or by
those individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority of
the members of the board of directors who are members on the date hereof), (iii)
the merger of the Maker with or into another entity that is not wholly owned by
the Maker, consolidation or sale of 33% or more of the assets of the Maker in
one or a series of related transactions, or (iv) the execution by the Maker of
an agreement to which the Maker is a party or by which it is bound, providing
for any of the events set forth above in (i), (ii) or (iii). 

8 




          (b)      If
any Event of Default occurs and shall be continuing, the full Principal amount
of this Convertible Debenture together with all of the Convertible Debentures,
together with all accrued interest thereon, shall become, at the election of the
Required Holders immediately due and payable in cash.

          (c)      The
Holder need not provide and the Maker 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
declaration may be rescinded and annulled by the Holder at any time prior to
payment hereunder. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon. 

     5.      NEGATIVE
COVENANTS. So long as any portion of the Principal of the Convertible
Debentures, any accrued or unpaid Interest or late charges remains outstanding,
the Maker will not, directly or indirectly, without the consent of the Required
Holders: 

          (a)      other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind debt incurred by
the Company in the ordinary course of business, not to exceed the higher of (i)
$250,000 in the aggregate, or (ii) 5% of the principal balance of the
Convertible Debentures; 

          (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 articles of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder, unless the sole and exclusive purpose
of such amendment of the Maker’s articles of incorporation, bylaws or other
charter documents is to increase the authorized capitalization of the Maker;


     6.      POSITIVE
COVENANTS. So long as any portion of the Principal of the Convertible
Debentures, any accrued or unpaid Interest or late charges remains outstanding,
the Maker will not directly or indirectly, without the consent of the Required
Holders: 

          (a)      enter
into any transaction, including, without limitation, the purchase, sale, or
exchange of property or the rendering of any service, with any Affiliate, except
in the ordinary course of and pursuant to the reasonable requirements of the
Maker’s business and upon fair and reasonable terms no less favorable to the
Maker than it would obtain in a comparable arm’s-length transaction with a
person not an Affiliate; 

          (b)      repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of securities other than the Convertible Debentures subject to
the prepayment provisions herein or as set forth on Schedule I hereto; 

          (c)      pay
cash dividends or distributions on any equity securities of the Maker; 

9 




          (d)      timely
pay and discharge all of its material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings; 

          (e)      continue
to engage in business of the same general type as now conducted by it and to
preserve, renew and keep in full force and effect, its corporate existence and
its assets, rights, privileges and franchises to the extent necessary or
desirable in the normal conduct of business; 

          (f)      comply
in all material respects with all applicable laws, ordinances, rules,
regulations, decisions, orders and requirements of governmental authorities;


          (g)      use
of the proceeds from the sale of the Convertible Debentures solely for the
purposes set forth in the Private Placement Memorandum issued in connection with
the sale of the Convertible Debentures and for no other purposes; 

          (h)      notify
Holder(s) promptly after the Maker shall obtain knowledge of any written notice
of any legal or arbitral proceedings, and of all proceedings by or before any
governmental authority, and each material development in respect of such legal
or other proceeding affecting the Maker, except proceedings which, if adversely
determined, would not reasonably be likely to have a material adverse effect on
the business or prospects of the Company; 

          (i)      keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities; 

          (j)      permit
any representatives designated by Holder, upon reasonable prior notice, to visit
and inspect its properties, to examine and make extracts from its books and
records, and to discuss its business, assets, affairs, finances, prospects, and
condition with its officers and independent accountants, all at such reasonable
times during normal business hours and as often as reasonably requested;

          (k)      promptly
upon Holder’s written request therefor, deliver to Holder such documents and
other evidence of the existence, good standing, foreign qualification and
financial condition of the Maker as Purchaser shall request from time to
time;

          (l)      effect
or enter into an agreement to effect any issuance by the Company of Common Stock
or Common Stock Equivalents (or a combination of units thereof) involving a
Variable Rate Transaction. “Variable Rate Transaction” means a
transaction in which the Company (i) issues or sells any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive, additional shares of Common Stock either (A) at a
conversion price, exercise price or exchange rate or other price that is based
upon, and/or varies with, the trading prices of or quotations for the shares of
Common Stock at any time after the initial issuance of such debt or equity
securities or (B) with a conversion, exercise or exchange price that is subject
to being reset at some future date after the initial issuance of such debt or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock, or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may issue securities at a
future determined price. Notwithstanding the foregoing Section 6(k) shall not
apply in respect of an Exempt Issuance except that no Variable Rate Transaction
shall be an Exempt Issuance;

10 




          (m)      sell
or grant any option to purchase or sell or grant any right to replace or
otherwise dispose of or issue (or announces any sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock equivalent
entitling any Person to acquire shares of Company Common Stock at an effective
price per share that is lower than the then Conversion Price (if the Holder of
Common Stock or Common Stock equivalent so issued shall at any time whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise due to warrants, options or rights per
share which are issued in connection with such issuance, entitled to receive
shares of Common Stock at an effective price per share that is lower than the
Conversion Price, such issuance shall deem to have occurred for less than the
Conversion Price on such date of issuance). Notwithstanding the foregoing
Section 6(k) shall not apply in respect of any Exempt Issuance; and 

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

     For the purposes of this Section
6, the following terms shall have the following meanings: 

               (i)      “Permitted
Indebtedness” shall mean either (a) the indebtedness of the Maker
existing on the date of issuance of this Convertible Debenture and set forth on
Schedule II hereto; , (b) any indebtedness the proceeds of which are used to
repay the Convertible Debentures in full, (c) indebtedness incurred in
connection with discounted bills of exchange or the discounting or factoring of
receivables for credit in each case incurred in the ordinary course of business
consistent with past practice and (d) any indebtedness incurred in the ordinary
course of business consistent with past practice or consented to by the Required
Holders, which consent shall be binding upon the Holder. 

               (ii)      “Permitted
Lien” shall mean 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
Maker) have been established in accordance with generally accepted accounting
procedures, (b) liens imposed by law which were incurred in the ordinary course
of business, such as carriers’, warehousemen’s and mechanics’ liens, statutory
landlords’ liens, and other similar liens arising in the ordinary course of
business, and (x) which 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 Maker or (y) which are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or asset subject to
such lien, (c) purchase money security interests, and (d) liens previously
granted by the Maker prior to the date hereof. 

11 




     7.      ADJUSTMENTS.


          (a)      Adjustment
of Fixed Conversion Price upon Subdivision or Combination of Common
Stock. Without limiting any provision herewith, if the Company at any time
on or after the Issuance Date subdivides (by any stock split, stock dividend,
stock combination, recapitalization or other similar transaction) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. Without limiting any provision
herewith, if the Company at any time on or after the Issuance Date combines (by
any stock split, stock dividend, stock combination, recapitalization or other
similar transaction) one or more classes of its outstanding shares of Common
Stock into a smaller number of shares, the Fixed Conversion Price in effect
immediately prior to such combination will be proportionately increased. Any
adjustment pursuant to this Section 7(a) shall become effective immediately
after the effective date of such subdivision or combination. If any event
requiring an adjustment under this Section 7(a) occurs during the period that a
Fixed Conversion Price is calculated hereunder, then the calculation of such
Fixed Conversion Price shall be adjusted appropriately to reflect such event.


          (b)      Failure
to Increase Authorized Shares Reduction in Conversion Price. If the
Company’s authorized shares of Common Stock are not increased to 450,000,000
shares by August 31, 2014 (the “Share Authorization Date”), then the Conversion
Price shall be reduced by $0.005 (subject to a floor of $0.055) for each thirty
(30) days or part thereof that such shareholder approval is not obtained. 

          (c)      Calculations.
All calculations under this Section 7 shall be made by rounding to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock. 

     8.      NO
WAIVER OF THE HOLDER’S RIGHTS. All payments of Principal and Interest shall
be made without setoff, deduction or counterclaim. No delay or failure on the
part of the Holder in exercising any of its options, powers or rights, nor any
partial or single exercise of its options, powers or rights shall constitute a
waiver thereof or of any other option, power or right, and no waiver on the part
of the Holder of any of its options, powers or rights shall constitute a waiver
of any other option, power or right. Maker hereby waives presentment of payment,
protest, and all notices or demands in connection with the delivery, acceptance,
performance, default or endorsement of this Note. Acceptance by the Holder of
less than the full amount due and payable hereunder shall in no way limit the
right of the Holder to require full payment of all sums due and payable
hereunder in accordance with the terms hereof. 

     9.      RESERVATION
OF AUTHORIZED SHARES. 

          (a)      Reservation.
Subject to the Company’s authorized share capital, the Company shall reserve out
of its authorized and unissued Common Stock such number of shares of Common
Stock as may be issued for all of the Convertible Debentures equal to [ ]% of
the Conversion Rate of all of the Convertible Debentures as of the most recent
Closing Date. After the earlier of the Authorized Share Increase Date and for so
long as any of the Convertible Debentures are outstanding, the Company shall
take all action necessary to reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the conversion of
the Convertible Debentures, [ ]% of the number of shares of Common Stock as
shall from time to time be necessary to effect the conversion of all of the
Convertible Debentures then outstanding, provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the "Required Reserve Amount"). The initial
number of shares of Common Stock reserved for conversions of the Convertible
Debentures and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Convertible Debentures based on the
original principal amount of the Convertible Debenture held by each holder on
the most recent Closing Date as of the applicable date of determination or
increase in the number of reserved shares (as the case may be) (the
"Authorized Share Allocation"). In the event that a holder shall sell or
otherwise transfer any of such holder's Convertible Debenture, each transferee
shall be allocated a pro rata portion of such holder's Authorized Share
Allocation. Any shares of Common Stock reserved and allocated to any Person
which ceases to hold any Convertible Debentures shall be allocated to the
remaining holders of Convertible Debenture, pro rata based on the principal
amount of the Convertible Debentures then held by such holders. 

12 




     10.      VOTING
RIGHTS. The Holder shall have no voting rights as the holder of this
Convertible Debenture, except as required by law (including, without limitation,
Title 7 of the Nevada Revised Statutes) and as expressly provided in this
Convertible Debenture. 

     11.      SECURITY.
The obligation of the Company under this Convertible Debenture are secured by
certain assets of the Maker pursuant to the certain Security Agreement, dated as
of the date hereof, by and among the Company and the secured party secondary
thereto. The Convertible Debentures shall be senior to all indebtedness of the
Company except for that certain indebtedness administered by Kalamalka Partners,
Ltd., as agent for certain lenders, as to which it shall rank pari passu. 

     12.      AMENDING
THE TERMS OF THIS CONVERTIBLE DEBENTURE. The prior written consent of the
Required Holders shall be required for any change or amendment to this
Convertible Debenture. No consideration shall be offered or paid to the Holder
to amend or consent to a waiver or modification of any provision of this
Convertible Debenture unless the same consideration is also offered to all of
the holders of the Convertible Debentures. The Holder shall be entitled, at its
option, to the benefit of any amendment to any of the Convertible Debentures.


     13.      TRANSFER.
Subject to compliance with applicable securities laws, this Convertible
Debenture and any shares of Common Stock issued upon conversion of this
Convertible Debenture may be offered, sold, assigned or transferred by the
Holder without the consent of the Company. 

13 




     14.      REISSUANCE
OF THIS CONVERTIBLE DEBENTURE. 

          (a)      Transfer.
If this Convertible Debenture is to be transferred, the Holder shall surrender
this Convertible Debenture to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Convertible Debenture (in
accordance herewith), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less than the
entire outstanding Principal is being transferred, a new Convertible Debenture
(in accordance herewith) to the Holder representing the outstanding Principal
not being transferred. The Holder and any assignee, by acceptance of this
Convertible Debenture, acknowledge and agree that, by reason of the provisions
herewith following conversion or redemption of any portion of this Convertible
Debenture, the outstanding Principal represented by this Convertible Debenture
may be less than the Principal stated on the face of this Convertible Debenture.


          (b)      Lost,
Stolen or Mutilated Convertible Debenture. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Convertible Debenture (as to which a written certification
and the indemnification contemplated below shall suffice as such evidence), and,
in the case of loss, theft or destruction, of any indemnification undertaking by
the Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Convertible Debenture, the
Company shall execute and deliver to the Holder a new Convertible Debenture (in
accordance with Section 14(c)) representing the outstanding Principal. 

          (c)      Issuance
of New Convertible Debenture. Whenever the Company is required to issue a
new Convertible Debenture pursuant to the terms of this Convertible Debenture,
such new Convertible Debenture (i) shall be of like tenor with this Convertible
Debenture, (ii) shall represent, as indicated on the face of such new
Convertible Debenture, the Principal remaining outstanding (or in the case of a
new Convertible Debenture being issued pursuant to Section 14(a), the Principal
designated by the Holder which, when added to the principal represented by the
other new Convertible Debenture issued in connection with such issuance, does
not exceed the Principal remaining outstanding under this Convertible Debenture
immediately prior to such issuance of new Convertible Debenture), (iii) shall
have an issuance date, as indicated on the face of such new Convertible
Debenture, which is the same as the Issuance Date of this Convertible Debenture,
(iv) shall have the same rights and conditions as this Convertible Debenture,
and (v) shall represent accrued and unpaid Interest and late charges on the
Principal and Interest of this Convertible Debenture, from the Issuance Date.


     15.      CUMULATIVE
RIGHTS AND REMEDIES; USURY. The rights and remedies of the Holder expressed
herein are cumulative and not exclusive of any rights and remedies otherwise
available under this Convertible Debenture, or applicable law (including at
equity). The election of the Holder to avail itself of any one or more remedies
shall not be a bar to any other available remedies, which the Maker agrees the
Holder may take from time to time. If it shall be found that any Interest due
hereunder shall violate applicable laws governing usury, the applicable Interest
Rate due hereunder shall be reduced to the maximum permitted rate of interest
under such law 

14 




     16.      GOVERNING
LAW. All questions concerning the construction, validity, enforcement and
interpretation of this Convertible Debenture shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each of the Maker
and the Holder agree that all legal proceedings concerning the interpretations,
enforcement and defense of this Convertible Debenture shall be commenced in the
state and federal courts sitting in The City of New York, County of New York
(the “New York Courts”). Each of the Maker and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder (including with respect to the enforcement
of this Convertible Debenture), 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 court, that such suit, action or
proceeding is improper. Each of the Maker and the Holder hereby irrevocably
waive 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 the other at
the address in effect for notices to it under this Convertible 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 manner permitted by law. Each of the Maker and
the Holder hereby irrevocably waive, 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 Convertible Debenture or the transactions
contemplated hereby. 

     17.      REQUIRED
NOTICE TO THE HOLDER. The Holder is to be notified by the Maker, within
three (3) business days, in accordance with the notice provisions in the
Subscription Agreement, of the existence or occurrence, of any Event of Default.


     18.      PAYMENT
OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Convertible
Debenture is placed in the hands of an attorney for collection or enforcement or
is collected or enforced through any legal proceeding or the Holder otherwise
takes action to collect amounts due under this Convertible Debenture or to
enforce the provisions of this Convertible Debenture or (b) there occurs any
bankruptcy, reorganization, receivership of the Company or other proceedings
affecting Company creditors' rights and involving a claim under this Convertible
Debenture, then the Company shall pay the costs incurred by the Holder for such
collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, without limitation,
attorneys' fees and disbursements. The Company expressly acknowledges and agrees
that no amounts due under this Convertible Debenture shall be affected, or
limited, by the fact that the purchase price paid for this Convertible Debenture
was less than the original Principal amount hereof. 

     19.      CONSTRUCTION;
HEADINGS. This Convertible Debenture shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any Person as
the drafter hereof. The headings of this Convertible Debenture are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Convertible Debenture. Terms used in this Convertible
Debenture but defined in the other Transaction Documents shall have the meanings
ascribed to such terms on the Subscription Date in such other Transaction
Documents unless otherwise consented to in writing by the Holder. 

15 




     20.      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, by electronic mail, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other address as the Company may specify for such
purposes by notice to the Holder delivered in accordance with this Section 20.
Any and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered, by email, or sent by a
nationally recognized overnight courier service addressed to each Holder at the
facsimile number or address of the Holder appearing on the books of the Company,
or if no such facsimile number or address appears on the books of the Company,
at the principal place of business of such Holder, as set forth in the
Subscription Agreement. 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 email at the
address set forth on the signature pages attached hereto prior to 5:30 p.m. (New
York City time) on any date, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via email at the
address set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day,
(iii) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service or (iv) upon actual receipt by
the party to whom such notice is required to be given. 

     21.      CERTAIN
DEFINITIONS. For purposes of this Convertible Debenture, the following terms
shall have the following meanings: 

          (a)      “Affiliate”
means, as applied to any person, (a) any other person directly or indirectly
controlling, controlled by or under common control with, that person, (b) any
other person that owns or controls 10% or more of any class of equity securities
(including any equity securities issuable upon the exercise of any option or
convertible security) of that person or any of its Affiliates, or (c) any
director, partner, officer, manager, agent, employee or relative of such person.
For the purposes of this definition, “control” (including with correlative
meanings, the terms “controlling,” “controlled by,” and “under common control
with”), as applied to any person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that person, whether through ownership of voting securities or by contract or
otherwise 

          (b)      "Authorized
Share Increase Date" means the date the Company increased the number of
authorized shares of Common Stock to [450,000,000] shares of Common Stock (as
adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction after the Subscription Date). 

          (c)      "Bloomberg"
means Bloomberg, L.P. 

          (d)      "Business
Day" means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed. 

          (e)      "Closing
Date" means, collectively, the Initial Closing Date and all Additional
Closing Dates, if any. 

16 




          (f)      "Common
Stock" means (i) the Company's shares of common stock, $0.001 par value per
share, and (ii) any capital stock into which such common stock shall have been
changed or any share capital resulting from a reclassification of such common
stock. 

          (g)      “Common
Stock Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock. 

          (h)      “Equity
Conditions” means during the period in question, (i) the Company shall duly
honor all conversions scheduled to occur or occurring, (ii) the Company has an
effective registration statement pursuant to which the Holders are permitted to
utilize the prospectus thereunder to resell all the Conversion Shares issuable
upon Conversion of the Convertible Debentures (and the Company believes in good
faith, that such effectiveness shall continue uninterrupted for the foreseeable
future), (iii) there is a sufficient number of authorized, but unissued or
otherwise unreserved shares of common stock for the issuance of all the
Conversion Shares, and (iv) there is no existing Event of Default or no Event of
Default which, with the passage of time or with the giving of notice, would
constitute an Event of Default.

          (i)      "Equity
Conditions Failure" means that on any day during the period commencing ten
(10) Trading Days prior to the applicable date of determination through the
applicable date of determination, the Equity Conditions have not been satisfied
(or waived in writing by the Requisite Holders). 

          (j)      “Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officer or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement, provided
that such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided any such issuance shall only be
to a Person which is, itself or through its subsidiaries, an operating company
in a business synergistic with the business of the Company and in which the
Company receives benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities. 

          (k)      "Initial
Closing Date" shall have the meaning set forth in the Subscription
Agreement. 

17 




          (l)      "Interest
Notice Due Date" means the second (2nd) Trading Day immediately prior to
the applicable Interest Date. 

          (m)      "Interest
Rate" means six percent (6.00%) per annum, as may be adjusted from time to
time in accordance with Section 2. 

          (n)      "Person"
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other
entity or a government or any department or agency thereof. 

          (o)      Intentionally
Left Blank.

          (p)      "Principal
Market" means the OTCQB Market. 

          (q)      "Required
Holders" means, at any given time, the holders of a majority of the
aggregate principal amount of the Convertible Debentures, outstanding as of such
time (excluding any Convertible Debenture held by the Company or any of its
subsidiaries). 

          (r)      "SEC"
means the United States Securities and Exchange Commission or the successor
thereto. 

          (s)      "Subscription
Agreement" means that certain subscription agreement, dated as of the
Subscription Date, by and among the Company and the initial holders of the
Convertible Debentures pursuant to which the Company issued the Convertible
Debentures and certain share purchase warrants, as may be amended from time to
time. 

          (t)      "Trading
Day" means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the
Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded, provided that "Trading Day" shall
not include any day on which the Common Stock is scheduled to trade on such
exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or
market (or if such exchange or market does not designate in advance the closing
time of trading on such exchange or market, then during the hour ending at
4:00:00 p.m., New York time) unless such day is otherwise designated as a
Trading Day in writing by the Holder. 

          (u)      "VWAP"
means, for any security as of any date, the dollar volume-weighted average price
for such security on the Principal Market during the period beginning at 9:30:01
a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by
Bloomberg through its “Volume at Price” function or, if the foregoing
does not apply, the dollar volume-weighted average price of such security in the
over-the-counter market for such security during the period beginning at 9:30:01
a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by OTC Markets Group Inc. If the VWAP
cannot be calculated for such security on such date on any of the foregoing
bases, the VWAP of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock
combination, recapitalization or other similar transaction during such period.


18 




     22.      DISCLOSURE.
Upon receipt or delivery by the Company of any notice in accordance with the
terms of this Convertible Debenture, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
non-public information relating to the Company or any of its Subsidiaries, the
Company shall within one (1) Business Day after any such receipt or delivery
publicly disclose such material, non-public information on a Current Report on
Form 8-K or otherwise. In the event that the Company believes that a notice
contains material, non-public information relating to the Company or any of its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, non-public information relating to the Company or its
Subsidiaries.

[signature page follows] 

19 




     IN WITNESS WHEREOF, the
Company has caused this Convertible Debenture to be duly executed as of the
Issuance Date set out above. 


	NAKED BRAND GROUP, INC. 
	  	 
	  	 
	By: 	 
	             	Joel Primus, Chief Executive
      Officer 



20 




EXHIBIT I 

NAKED BRAND GROUP, INC. 
CONVERSION NOTICE 

     Reference is made to the 6%
Senior Secured Convertible Debenture (the "Convertible Debenture") issued
to the undersigned by Naked Brand Group, Inc., a Nevada corporation (the
"Company"). In accordance with and pursuant to the Convertible Debenture, the
undersigned hereby elects to convert the Conversion Amount (as defined in the
Convertible Debenture) of the Convertible Debenture indicated below into shares
of Common Stock, $0.001 par value per share (the "Common Stock"), of the
Company, as of the date specified below. Capitalized terms not defined herein
shall have the meaning as set forth in the Convertible Debenture. 

	Date of Conversion: 	 
	 	 
	Aggregate Principal to be converted:	 
	 	 
	Aggregate accrued and unpaid
      Interest and accrued 
and unpaid late fees with respect to such portion
      of 
the aggregate Principal and such aggregate Interest 
to be
      converted: 	 
	 	 
	AGGREGATE CONVERSION AMOUNT TO BE
      
CONVERTED: 	 
	 	 
	Please confirm the following information: 	 
	 	 
	Conversion Price: 	 
	 	 
	Number of shares of Common Stock to be
      issued: 	 
	 	 
	Please issue the Common Stock into
      which the 
Convertible Debenture is being converted in the
      
following name and to the following address: 	 
	 	 
	Issue to: 	 
	 	 
	Facsimile Number: 	 


21 





	 	 
	Holder: 	 
	 	 
	By: 	 
	 	 
	Title: 	 
	 	 
	Dated: 	 
	 	 
	Account Number: 	 
	 	 
	(if electronic book entry transfer) 	 
	 	 
	Transaction Code Number: 	 
	 	 
	(if electronic book entry transfer) 	 
	 	 
	Address: 
(if delivery of
      share certificates)	 
	 	 
	 	 





22