Lithium Exploration Group, Inc.: Exhibit 10.2 - Filed by newsfilecorp.com






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: _________________, 2012
Original
Conversion Price (subject to adjustment herein): $0.45

$1,680,000.00

ORIGINAL ISSUE DISCOUNT SENIOR CONVERTIBLE DEBENTURE 
DUE
______________________ [12 MONTHS FROM CLOSING]

     THIS ORIGINAL ISSUE DISCOUNT
SENIOR CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly
issued Original Issue Discount Senior Convertible Debentures of Lithium
Exploration Group, Inc., a Nevada corporation, (the “Company”), having
its principal place of business at 3200 N. Hayden Road, Suite 300, Scottsdale,
AZ 85251, designated as its Original Issue Discount Senior Convertible Debenture
due ____________________________ [12 MONTHS FROM CLOSING] (this debenture, the
“Debenture” and, collectively with the other debentures of such series,
the “Debentures”).

     FOR VALUE RECEIVED, the Company
promises to pay to Hagen Investments Ltd. or its registered assigns (the
“Holder”), or shall have paid pursuant to the terms hereunder, the
principal sum of $1,680,000.00 on ____________ (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:

1




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

     “Bankruptcy Event” means any
of the following events: (a) the Company or any Significant Subsidiary (as such
term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or
other proceeding under any bankruptcy, reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction relating to the Company or any Significant Subsidiary
thereof, (b) there is commenced against the Company or any Significant
Subsidiary thereof any such case or proceeding that is not dismissed within 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.

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

     “Beneficial Ownership
Limitation” shall have the meaning set forth in Section 4(d). 

     “Business Day” means any day
except any Saturday, any Sunday, any day which is 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(c)(v).

     “Change of Control
Transaction” means the occurrence after the date hereof of any of (a) 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), (b)
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, (c) 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, (d) a replacement at one
time of more than one-half of the members of the Board of Directors which is not
approved by a majority of those individuals who are members of the Board of
Directors on the Original Issue Date (or by those individuals who are serving as
members of the Board of Directors on any date whose nomination to the Board of
Directors was approved by a majority of the members of the Board of Directors
who are members on the date hereof), or (e) 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 (a) through (d) above.

2




     “Conversion” shall have the
meaning ascribed to such term in Section 4.

     “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 Schedule” means
the Conversion Schedule in the form of Schedule 1 attached hereto.

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

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

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

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

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

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

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

     “Mandatory Default Amount”
means the sum of (a) the greater of (i) 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, or (ii) 130% of
the outstanding principal amount of this Debenture, plus 100% of accrued and
unpaid interest hereon, and (b) all other amounts,
costs, expenses and liquidated damages due in respect of this Debenture.

3




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

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

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

     “Permitted Indebtedness”
means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness
existing on the Original Issue Date and set forth on Schedule 3.1(aa)
attached to the Purchase Agreement, (c) lease obligations and purchase money
indebtedness of up to $150,000, in the aggregate, incurred in connection with
the acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets, and (d) such indebtedness as shall be explicitly
subordinate to the Indebtedness in terms of repayment and other rights..

     “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 clauses (a) and (b) and (d) Liens incurred in connection with
Permitted Indebtedness under clause (c) thereunder, provided that such Liens are
not secured by assets of the Company or its Subsidiaries other than the assets
so acquired or leased.

     “Purchase Agreement” means
the Securities Purchase Agreement, dated as of June 29, 2011 among the Company
and the original Holder, as amended, modified or supplemented from time to time
in accordance with its terms.

     “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(c)(ii).

4




     “Successor Entity” shall have
the meaning set forth in Section 5(e). 

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

     “Trading Market” means any of
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the NYSE AMEX, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange or the OTC Bulletin Board (or any successors to any of the
foregoing).

     “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 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 listed or 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 OTC Markets, Inc. (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 Holders of a majority in interest of the
Securities then outstanding and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.

     Section 2. Interest
and Prepayment. This Debenture was issued for an original issue discount of
$180,000. Except as otherwise provided, no regularly scheduled interest payments
shall be made on this Debenture. 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.

5




     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
whole or in part, into shares of Common Stock at the option of the Holder, at
any time and from time to time (subject to the conversion limitations set forth
in Section 4(d) 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 (each, 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 one (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 shall mean the lesser of (i) sixty
five percent (65%) of the lowest reported sale price of the Common Stock for the
twenty trading days immediately prior to the Conversion Date, or (ii) $0.45. In
the event there shall be a Public Information Failure, and such failure shall
cause Rule 144 to be unavailable for the resale of Common Stock issuable upon
conversion of this Debenture in the reasonable opinion of counsel for the
Holder, the Conversion Price set forth herein shall be reduced an additional ten
percent (10%) of the lowest reported sale price of the Common Stock for the ten
trading days immediately prior to the Conversion Date, for each such Public Information Failure.
For purposes of clarity, it is understood that if there shall be a Public
Information Failure which is cured and then repeated once, the Conversion Price
shall be reduced an additional twenty percent (20%) of the lowest reported sale
price of the Common Stock for the ten trading days immediately prior to the
Conversion Date The Conversion Price may be adjusted pursuant to the other terms
of this Debenture.

6




     c)
Mechanics of Conversion.

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

     ii.
Delivery of Certificate Upon Conversion. Not later than three (3) 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 earlier
of (i) the six month anniversary of the Original Issue Date or (ii) 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 Conversion Shares being acquired upon the conversion
of this Debenture, 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). The Company shall use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section 4(c)
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 Share Delivery Date, the Holder shall be
entitled to elect by written notice to the Company at any time on or before its
receipt of such certificate or certificates, to rescind such Conversion, in
which event the Company shall promptly return to the Holder any original
Debenture delivered to the Company and the Holder shall promptly return to the
Company the Common Stock certificates issued to such Holder pursuant to the
rescinded Conversion Notice. 

     iv.
Obligation Absolute; Partial Liquidated Damages. The Company’s
obligations to issue and deliver the Conversion Shares upon conversion of this
Debenture in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of such Conversion Shares;
provided, however, that such delivery shall not operate as a
waiver by the Company of any such action the Company may have against the
Holder. In the event the Holder of this Debenture shall elect to convert any or
all of the outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or anyone associated or affiliated
with the Holder has been engaged in any violation of law, agreement or for any
other reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this Debenture shall
have been sought and obtained, and the Company posts a surety bond for the
benefit of the Holder in the amount of 150% of the outstanding principal amount
of this Debenture, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the underlying
dispute and the proceeds of which shall be payable to the Holder to the extent
it obtains judgment. In the absence of such injunction, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
If the Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the
Company shall pay to the Holder, in cash, as liquidated damages and not as a
penalty, for each $1,000 of principal amount being converted, $10 per Trading
Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day
after such liquidated damages begin to accrue) for each Trading Day after such
Share Delivery Date until such certificates are delivered or Holder rescinds
such conversion. Nothing herein shall limit a Holder’s right to pursue actual
damages or declare an Event of Default pursuant to Section 8 hereof for the
Company’s failure to deliver Conversion Shares within the period specified
herein and the Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.

7




     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(c)(ii), and if
after such Share Delivery Date the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise), or the Holder’s brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such
Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash
to the Holder (in addition to any other remedies available to or elected by the
Holder) the amount, 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 4(c)(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.

8




     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 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 then 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.

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

9




     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.

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

10




     Section 5. Certain Adjustments.

     a)
Stock Dividends and Stock Splits. If the Company, at any time while this
Debenture is outstanding: (i) 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), (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, (iii) combines
(including by way of a reverse stock split) outstanding shares of Common Stock
into a smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Company) outstanding immediately before such event, and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

11




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

12




     c)
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 the 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, options
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,
options 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, options 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.

     d) Pro
Rata Distributions. If the Company, at any time while this Debenture is
outstanding, distributes to all holders of Common Stock (and not to the Holders)
evidences of its indebtedness or assets (including cash and cash dividends) or
rights or warrants to subscribe for or purchase any security (other than the
Common Stock, which shall be subject to Section 5(b)), then in each such case
the Conversion Price shall be adjusted by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness or rights or warrants so distributed applicable to one
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 one 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.

13




     e) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into
another Person, (ii) the Company, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Company, directly or
indirectly, in one or more related transactions effects any
  reclassification, reorganization or recapitalization of the Common Stock or any
  compulsory share exchange pursuant to which the Common Stock is effectively
  converted into or exchanged for other securities, cash or property, (v) the
  Company, directly or indirectly, in one or more related transactions consummates
  a stock or share purchase agreement or other business combination (including,
  without limitation, a reorganization, recapitalization, spin-off or scheme of
  arrangement) with another Person whereby such other Person acquires more than
  50% of the outstanding shares of Common Stock (not including any shares of
  Common Stock held by the other Person or other Persons making or party to, or
  associated or affiliated with the other Persons making or party to, such stock
  or share purchase agreement or other business combination) (each 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 (without regard to any limitation in
  Section 4(d) on the conversion of this Debenture), the number of shares of
  Common Stock of the successor or acquiring corporation or of the Company, if it
  is the surviving corporation, and any additional consideration (the
  “Alternate Consideration”) receivable as a result of such Fundamental
  Transaction by a holder of the number of shares of Common Stock for which this
  Debenture is convertible immediately prior to such Fundamental Transaction
  (without regard to any limitation in Section 4(d) on the conversion of this
  Debenture). 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 one (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. The Company shall cause any successor entity in a
  Fundamental Transaction in which the Company is not the survivor (the
  “Successor Entity”) to assume in writing all of the obligations of
  the Company under this Debenture and the other Transaction Documents (as defined
  in the Purchase Agreement) in accordance with the provisions of this Section
  5(e) pursuant to written agreements in form and substance reasonably
  satisfactory to the Holder and approved by the Holder (without unreasonable
  delay) prior to such Fundamental Transaction and shall, at the option of the
  holder of this Debenture, deliver to the Holder in exchange for this Debenture a
  security of the Successor Entity evidenced by a written instrument substantially
  similar in form and substance to this Debenture which is convertible for a
  corresponding number of shares of capital stock of such Successor Entity (or its
  parent entity) equivalent to the shares of Common Stock acquirable and
  receivable upon conversion of this Debenture (without regard to any limitations
  on the conversion of this Debenture) prior to such Fundamental Transaction, and
  with a conversion price which applies the conversion price hereunder to such
shares of capital stock (but taking into account the relative value of the
shares of Common Stock pursuant to such Fundamental Transaction and the value of
such shares of capital stock, such number of shares of capital stock and such
conversion price being for the purpose of protecting the economic value of this
Debenture immediately prior to the consummation of such Fundamental
Transaction), and which is reasonably satisfactory in form and substance to the
Holder. Upon the occurrence of any such Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Debenture and the other
Transaction Documents referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Debenture and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein.

14




     f)
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.

     g)
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 deliver
to each Holder a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.

     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 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, or any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this
Debenture, and shall cause to be delivered to the Holder at its last address as
it shall appear upon the Debenture Register, at least twenty (20) calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. To the extent that any
notice provided hereunder constitutes, or contains, material, non-public
information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K. The Holder shall remain 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 except as may otherwise be expressly
set forth herein. 

15




     Section 6. Reserved.

     Section 7. Negative
Covenants. As long as any portion of this Debenture remains outstanding,
unless the holders of all of the then outstanding Debentures shall have
otherwise given prior written consent, the Company shall not, and shall not
permit any of the Subsidiaries 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 de
minimis number of shares of its Common Stock or Common Stock Equivalents
other than as to the Conversion Shares or Warrant Shares as permitted or
required under the Transaction Documents; 

16




     e) repay,
repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness,
other than the Debentures if on a pro-rata basis, other than regularly scheduled
principal and interest payments as such terms are in effect as of the Original
Issue Date, provided that such payments shall not be permitted if, at such time,
or after giving effect to such payment, any Event of Default exist or occur;

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

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

     h) 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 (ix) 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 to the Company 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);

17




     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 (as such term is defined in Rule 1-02(w)
of Regulation S-X) 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 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 $100,000, 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. the
Company shall fail for any reason to deliver certificates to a Holder prior to
the fifth Trading Day after a Conversion Date pursuant to Section 4(c) 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;

     x. any
Person shall breach any agreement delivered to the initial Holders pursuant to
Section 2.2 of the Purchase Agreement; or

     xi. 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.

18




     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, then this Debenture shall bear interest which shall accrue at
an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted under applicable law, which shall be paid in cash or subject to
Section 4(d) at the Holder’s election in shares of Common Stock or (at Holder’s
election) a combination thereof. In the event that the Holder elects to receive
shares of Common Stock in payment of the amounts due pursuant to this Section
then Holder shall give the Company notice of such election as soon as
practicable after such amount is due. 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, or such other facsimile number or address as the
Company may specify for such purposes by notice to the Holder delivered in
accordance with this Section 9(a). Any and all notices or other communications
or deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
the Holder appearing on the books of the Company, or if no such facsimile number
or address appears on the books of the Company, at the principal place of
business of such Holder, as set forth in the Purchase 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 facsimile
at the facsimile number 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
facsimile at the facsimile number 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.

19




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

     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 New
York, without regard to the principles of conflict of laws thereof. Each party
agrees that all legal proceedings concerning the interpretation, enforcement and
defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the
“New York Courts”). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect
for notices to it under this Debenture and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Debenture or the transactions contemplated hereby. If any 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.

20




     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 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 on any other
occasion. 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 Debenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such as
though no such law has been enacted.

     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.

21




     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.

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

(Signature Pages Follow)

22




     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.

	 	LITHIUM EXPLORATION
      GROUP, INC. 
	 	 	  
	 	 	  
	 	 	  
	 	By:	
	 	 	Name: 
	 	 	Title: 
	 	 	  
	 	Facsimile No. for
      delivery of Notices: __________________


23




ANNEX A

NOTICE OF CONVERSION

     The undersigned hereby elects to
convert principal under the Original Issue Senior Convertible Debenture due
___________ , of Lithium Exploration Group, Inc., a Nevada corporation (the
“Company”), into shares of common stock (the “Common Stock”), of
the Company according to the conditions hereof, as of the date written below. If
shares of Common Stock are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.

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

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

	Conversion calculations: 	
	 	Date to Effect Conversion: 
	 	 
	 	Principal Amount of Debenture to be Converted:
    
	 	 
	 	Payment of Interest in Common Stock __ yes __
      no 
	 	          If yes,
      $_____of Interest Accrued on Account of 
	 	         
      Conversion at Issue. 
	 	 
	 	Number of shares of Common Stock to be issued:
    
	 	 
	 	Signature: 
	 	 
	 	Name: 
	 	 
	 	Address for Delivery of Common Stock
      Certificates: 
	 	 
	 	Or 
	 	 
	 	DWAC Instructions: 
	 	 
	 	Broker No: ____________________
	 	Account No:
__________________


24




Schedule 1

CONVERSION SCHEDULE

Original Issue Senior Convertible Debentures due on __________
in the aggregate principal amount of $1,680,,000.00 are issued by Lithium
Exploration Group, Inc., a Nevada 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      

	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 




25