**Exhibit 4.1(a)**

**EXHIBIT A**

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTEREDWITH 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 OFFEREDOR 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 WITHAPPLICABLE 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 THISSECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. 

Original Issue Date: February    , 2007 

Original Conversion Price (subject to adjustment herein): **$2.00**

$                    

**8% SECURED CONVERTIBLE DEBENTURE**

**DUE FEBRUARY     , 2010**

THIS DEBENTUREis one of a series of duly authorized and validly issued 8% Secured Convertible Debentures of Star Energy Corporation, a Nevada corporation, (the “Company”), having its principal office at 317 Madison Avenue, 21st Floor, New York, NY, 10017, designated as its 8% Secured Convertible Debenture due February     , 2010 as the same may besupplemented, modified, amended, restated or replaced from time to time in the manner provided herein, this “Debenture” and, collectively with the other such series of debentures, the “Debentures”). 

FOR VALUE RECEIVED, the Company promises to pay to                                        or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of$                     on February     , 2010 (the “Maturity Date”) or such earlier date as thisDebenture 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, all in accordance with the provisions hereof. ThisDebenture is subject to the following additional provisions: 

Section 1. Definitions. For the purposes hereof, inaddition 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 or other applicable Transaction Document (as such terms are definedherein), and (b) the following terms shall have the following meanings: 

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

 

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“Bankruptcy Event” means any of the following events: (a) theCompany 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 notdismissed 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 Companyor 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 anySignificant Subsidiary thereof makes a general assignment for the benefit of creditors; (f) the Company or any Significant Subsidiary thereof calls a general meeting of all or substantially all of its creditors for the stated purpose ofarranging a composition, adjustment or restructuring of its debts; or (g) the Company or any Significant Subsidiary thereof, by any act or document, expressly indicates its consent to, approval of or acquiescence in any of the foregoing ortakes any corporate or other action for the purpose of effecting any of the foregoing. 

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

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

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

“Change of Control Transaction” means the occurrence after the date hereof of any of (i) an acquisition after thedate 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 contractor otherwise) of in excess of 40% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), or (ii) the Company merges into or consolidateswith 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 60% of the aggregate voting power ofthe Company or the successor entity of such transaction, or (iii) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the 

 

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Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, or(iv) a replacement at one time or within a three year period of more than one-half of the members of the Company’s board of directors which is not nominated or approved by a majority of those individuals who are members of the board ofdirectors or nominating committee on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose position on the board of directors was approved by a majority of the members of the board ofdirectors or nominating committee who are members on the date hereof), or (v) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses(i) through (iv) above. 

“Common Stock” means the common stock, par value $.001 per share, of theCompany and stock of any other class of securities into which such securities may hereafter be reclassified or changed into. 

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

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

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

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

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

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

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

“Equity Conditions” means, during the period in question,(i) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (ii) the Company shall have paid all liquidated damages and otheramounts owing to the Holder in respect of this Debenture, (iii) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the Underlying Shares issuable pursuantto the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future), (iv) the Common Stock is trading on a Trading Market and all of the Underlying Sharesissuable pursuant to the Transaction Documents are or upon issuance will be listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continueuninterrupted for the foreseeable future), (v) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the Underlying 

 

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Shares issuable pursuant to the Transaction Documents, (vi) there is no existing Event of Default or no existing event which, with the passage of timeor the giving of notice, would reasonably constitute an Event of Default, (vii) the issuance of the shares in question (or, in the case of an Optional Redemption, the shares issuable upon conversion in full of the Optional Redemption) to theHolder would not violate the limitations set forth in Section 4(c) herein, (viii) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated,(ix) the Holder is not in possession of any information provided by the Company that constitutes, or could reasonably be expected to constitute, material non-public information and (x) for a period of 20 consecutive Trading Days prior tothe applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds 100,000 shares (subject to adjustment for forward and reverse stock splits and the like) per Trading Day. 

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

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

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

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

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

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

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

“Indebtedness” means (a) any liabilities for borrowed money or similar amounts owed in excess of $50,000 (other thantrade accounts payable incurred in the ordinary course of business and inter-company advances among the Company and its Subsidiaries), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others,whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except for (i) guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinarycourse of business and (ii) guaranties of the Indebtedness or other obligations of the Company or any Subsidiary by any other Subsidiary or the Company; and (c) the present value of any lease payments in excess of $50,000 due under leasesrequired to be capitalized in accordance with GAAP. 

“Interest Conversion Rate” means the lesser of(a) the Conversion Price or (b) 85% of the lesser of (i) the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Interest Payment Date or (ii) the averageof the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Interest Conversion Shares are issued and delivered if after the Interest Payment Date. 

 

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

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

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

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

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

“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). 

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

“Optional Redemption Amount” means the sum of (i) if the Optional Redemption Date is on or prior to the secondanniversary of the Original Issue Date, 120% of the then outstanding principal amount of the Debenture and if the Optional Redemption Date is after the second anniversary of the Original Issue Date and prior to the Maturity Date, 110% of the thenoutstanding principal amount of the Debenture (ii) accrued but unpaid interest and (iii) all liquidated damages and other amounts due in respect of the Debenture. 

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

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

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

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

 

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“Permitted Indebtedness” means (a) the Indebtedness existing on theOriginal Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (b) capital lease obligations, construction or improvement financing and purchase money indebtedness incurred in connection with the acquisition,construction or improvement of capital assets and capital lease obligations with respect to newly acquired, improved or leased assets (provided, that immediately following any such transaction, the pro forma consolidated total Indebtedness of theCompany and its subsidiaries to their consolidated Total Asset ratio is not more than 0.75 to 1); (c) additional Indebtedness incurred by the Company in connection with raising capital for the acquisition of another entity which is, itself orthrough its subsidiaries, an operating company in a business synergistic with the business of the Company (by merger, consolidation, the acquisition of all or substantially of the assets of such entity or similar transaction) provided that anyIndebtedness incurred under this clause (d) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser; or (e) any continuation, extension, renewal,modification, refinancing or replacement of any such Permitted Indebtedness on overall terms that are generally no less favorable than those applicable to the existing Permitted Indebtedness. 

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessmentsand 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 themanagement of the Company) have been established in accordance with GAAP; (b) Liens imposed by law and incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens,statutory landlords’ Liens, Liens consisting of easements, right-of-way, restrictions, covenants or other agreements of record or similar charges or encumbrances, and other similar Liens arising in the ordinary course of the Company’sbusiness, 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 Subsidiariesor (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 inconnection with Permitted Indebtedness under clause (b) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired, constructed, improved or leased (and the products andproceeds thereof, insurance therefor and warranty and other contract rights related thereto); (d) Liens incurred in respect of judgments and awards discharged within 30 days from the making thereof; (e) any cash deposits made or bonds orletters of credit posted in the ordinary course to secure performance under any contract or applicable law; (f) in the case of any account, intangible, instrument, lease, agreement or document, any contractual right, power, privilege, remedy,interest, defect, restriction, covenant, claim, counterclaim, right of recoupment, abatement, reduction or setoff, or defense of any account debtor or other party thereto, whether now existing or hereafter arising, and whether pursuant to theapplicable contractual provisions or applicable law; (g) Liens existing on the Original Issue Date and set forth on Schedule 3.1(n) attached to the 

 

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Purchase Agreement or (h) any renewal, continuation, extension or replacement of any such Permitted Lien, provided that the scope of the assetsencumbered thereby shall not be thereby increased. 

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

“Purchase Agreement” means the Securities Purchase Agreement, dated as of February 9, 2007 among the Company and theoriginal Holders, as amended, modified or supplemented from time to time in accordance with its terms. 

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

“Registration Statement” means a registration statement that registers theresale of all Conversion Shares and the shares of Common Stock issuable in lieu of cash interest payments of the Holder, names such Holder as a “selling stockholder” therein, and meets the requirements of the Registration Rights Agreement.

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

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

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

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

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

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

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

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if theCommon Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for tradingas reported by Bloomberg L.P. (based on a Trading Day from 

 

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9:30 a.m. (New York City time) to 4:02 p.m. (New York City time); (b) if the Common Stock is not then listed or quoted for trading on a Trading Marketand if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of theCommon Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company. 

Section 2. Interest. 

a) Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 8% per annum,payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the Original Issue Date, on each Conversion Date (as to that principal amount then being converted), on each OptionalRedemption Date (as to that principal amount then being redeemed) and on the Maturity Date (each such date, an “Interest Payment Date”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due onthe next succeeding Business Day), in cash or duly authorized, validly issued, fully paid and non-assessable shares of Common Stock at the Interest Conversion Rate (the dollar amount to be paid in shares, the “Interest ShareAmount”) or a combination thereof; provided, however, that payment in shares of Common Stock may only occur if (i) all of the Equity Conditions have been met (unless waived by the Holder in writing) during the 20 TradingDays immediately prior to the applicable Interest Payment Date (the “Interest Notice Period”) and through and including the date such shares of Common Stock are issued to the Holder and (ii) the Company shall have given theHolder notice in accordance with the notice requirements set forth below. 

b) Company’s Election to Pay Interest inKind. Subject to the terms and conditions herein, the decision whether to pay interest hereunder in cash, shares of Common Stock or a combination thereof shall be at the discretion of the Company. Prior to the commencement of any Interest NoticePeriod, the Company shall deliver to the Holder a written notice of its election (with any election to pay with shares of Common Stock, in whole or in part, conditioned on compliance with the Equity Conditions during the Interest Notice Period) topay interest hereunder on the applicable Interest Payment Date either in cash, shares of Common Stock or a combination thereof and the Interest Share Amount as to the applicable Interest Payment Date, provided that the Company may indicate in suchnotice that the election contained in such notice shall apply to future Interest Payment Dates until revised by a subsequent notice. During any Interest Notice Period, the Company’s election (whether specific to an Interest Payment Date orcontinuous) shall be irrevocable as to such Interest Payment Date. Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder or failure to comply with the Equity Conditions during the Interest NoticePeriod shall be deemed an election by the Company to pay the interest on such Interest Payment Date in cash. At any time the Company delivers a notice to the Holder of its election to pay the interest in shares of Common Stock, the Company shalltimely file a prospectus supplement pursuant to Rule 424 disclosing such election. 

 

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

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

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

Section 3. Registration of Transfersand Exchanges. 

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principalamount 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. 

 

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b) Investment Representations. This Debenture has been issued (as one of the“Securities” identified thereunder) 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 applicablefederal and state securities laws and regulations. 

c) Reliance on Debenture Register. Prior to due presentment fortransfer 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 hereinprovided 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 afterthe 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 conversionlimitations set forth in Section 4(c) hereof and irrespective of any Equity Condition). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (a“Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date isspecified 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 theCompany 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 anamount 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 1Business 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 ofthis 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 theface hereof.**

b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to**$2.00,**subject to adjustment herein (the “Conversion Price”). 

 

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c) Conversion Limitations. The Company shall not effect any conversion of thisDebenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’sAffiliates, and any other person or entity acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of theforegoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination isbeing made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by such Holder or any of its Affiliates and(B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any otherDebentures or the Warrants) beneficially owned by such Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance withSection 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(c) applies, the determination of whether this Debenture is convertible (in relation toother securities owned by such Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to besuch Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by such Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to suchaggregate percentage limitations. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions setforth 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 withSection 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstandingshares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent noticeby 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 suchHolder 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 thisDebenture, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stockoutstanding immediately after giving 

 

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effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Beneficial Ownership Limitationprovisions of this Section 4(c) may be waived by such Holder, at the election of such Holder, upon not less than 61 days’ prior notice to the Company, to change the Beneficial Ownership Limitation to 9.99% of the number of shares of theCommon Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the provisions of this Section 4(c) shall continue to apply. Upon such a change by aHolder of the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership Limitation may not be further waived by such Holder. The provisions of this paragraph shall be construed and implemented in amanner otherwise than in strict conformity with the terms of this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or tomake changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph along with the other provisions of this Debenture) shall apply to a successor holder of this Debenture.

d) Mechanics of Conversion. 

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

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

 

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

iv. ObligationAbsolute; 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 orinaction 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 ortermination, 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 mightotherwise 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 Companymay 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 oraffiliated 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 beensought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 125% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until thecompletion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, ifapplicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date, the Companyshall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $1000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin toaccrue) for each Trading Day after such third Trading Day until such 

 

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certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant toSection 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, withoutlimitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. 

v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available tothe Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokeragefirm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which the Holder was entitledto 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 bywhich (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled toreceive 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, eitherreissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied withits delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which theactual 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 theHolder $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 aHolder’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 delivercertificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof. 

 

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vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that itwill 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 frompreemptive 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 andconditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of interest hereunder. TheCompany covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall beregistered for public sale in accordance with such Registration Statement. 

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

viii. Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be madewithout 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 inrespect 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 certificatesunless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 

Section 5. Certain Adjustments. 

a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares ofCommon 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 or the exerciseof any Warrant); (B) subdivides outstanding shares of Common Stock into a larger number of shares; (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; 

 

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or (D) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Priceshall 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 ofshares 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 ordistribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. 

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, orotherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or any Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per sharethat 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 soissued 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 suchissuance, 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 DilutiveIssuance), 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 madeunder this Section 5(b) in respect of an Exempt Issuance, and for avoidance of doubt, Dilutive Issuances shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures or theexercise of any Warrant. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicableissuance 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 DilutiveIssuance 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. 

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 ofCommon Stock at a price per share that is lower than the VWAP on the record date 

 

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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 Stockoutstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on thedate of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights,options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive suchrights, options or warrants. 

d) Pro Rata Distributions. If the Company, at any time while this Debenture isoutstanding, 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 CommonStock, 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 entitledto 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 recorddate of the portion of such assets or evidence of indebtedness so distributed applicable to 1 outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall bedescribed in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any suchdistribution is made and shall become effective immediately after the record date mentioned above. 

e) FundamentalTransaction. If, at any time while this Debenture is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of itsassets in one transaction or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange theirshares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for othersecurities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have beenissuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transactionif it had been, immediately prior to such Fundamental Transaction, the holder 

 

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of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Priceshall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the ConversionPrice 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 bereceived in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuatethe foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert suchdebenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e)and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. 

f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, asthe 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, theCompany shall promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company enters into a Variable Rate Transaction, despitethe 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. 

ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whateverform) 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 tosubscribe 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 mergerto which the Company is a party, any sale or transfer of all or substantially all of the assets of 

 

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the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shallauthorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture,and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date onwhich 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 isexpected 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 shareexchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert thisDebenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice. 

Section 6. Forced Conversion and Optional Redemption. 

a) Forced Conversion. Notwithstanding anything herein to the contrary, if after the 30th Trading Dayfollowing Effective Date, the VWAP for each of any 20 out of 30 consecutive Trading Days, which period shall have commenced only after the 30thTrading Day following the Effective Date (such period the “Threshold Period”), exceeds $6.00 (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of theCommon Stock that occur after the Original Issue Date), the Company may, within 2 Trading Days after the end of any such Threshold Period, deliver a written notice to the Holder (a “Forced Conversion Notice” and the date such noticeis delivered to the Holder, the “Forced Conversion Notice Date”) to cause the Holder to convert all or part of the then outstanding principal amount of this Debenture plus, if so specified in the Forced Conversion Notice, accruedbut unpaid interest, liquidated damages and other amounts owing to the Holder under this Debenture, it being agreed that the “Conversion Date” for purposes of Section 4 shall be deemed to occur on the thirtieth Trading Day followingthe Forced Conversion Notice Date (such thirtieth Trading Day, the “Forced Conversion Date”). The Company may not deliver a Forced Conversion Notice, and any Forced Conversion Notice delivered by the Company shall not be effective,unless all of the Equity Conditions are met (unless waived in writing by the Holder) on each Trading Day occurring during the applicable Threshold Period through and including the later of the Forced Conversion Date and the Trading Day after thedate such Conversion Shares pursuant to such conversion are delivered to 

 

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the Holder. Any Forced Conversion shall be applied ratably to all Holders based on their initial purchases of Debentures pursuant to the Purchase Agreement,provided that any voluntary conversions by a Holder shall be applied against such Holder’s pro-rata allocation, thereby decreasing the aggregate amount forcibly converted hereunder if only a portion of this Debenture is forcibly converted. Forpurposes of clarification, a Forced Conversion shall be subject to all of the provisions of Section 4, including, without limitation, the provision requiring payment of liquidated damages and limitations on conversions. 

b) Optional Redemption at Election of Company. Subject to the provisions ofthis Section 6, at any time after the Effective Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional RedemptionNotice Date”) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 22nd Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date” and such redemption, the “OptionalRedemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by theHolder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any ofthe Equity Conditions shall cease to be satisfied at any time during such period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such EquityCondition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day afterproper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the OptionalRedemption Notice through the date all amounts owing thereon are due and paid in full. 

c) Redemption Procedure. Thepayment of cash pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accruethereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the OptionalRedemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio, and the Company shall have no further right toexercise such Optional Redemption. The Holder may elect to convert the outstanding principal amount 

 

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of this Debenture subject to a redemption under this Section 6 pursuant to Section 4 prior to actual payment in cash for such redemption by thedelivery of a Notice of Conversion to the Company. 

Section 7. Negative Covenants. As long as any portion of thisDebenture remains outstanding, unless the holders of at least 51% in principal amount of the then outstanding Debentures shall have otherwise given their written consent or waiver, the Company shall not, and shall not permit any of its subsidiaries(whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly: 

a) other than Permitted Indebtedness,enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, any guarantee of such indebtedness; 

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 ofits property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; 

c) amendits charter documents, including, without limitation, the 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 Stockor Common Stock Equivalents other than as to (a) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (b) repurchases of Common Stock or Common Stock Equivalents of departing officers anddirectors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture; 

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

f) enter into any transaction with any Affiliate of the Company (other than any of the Company or Subsidiary) that would be required to bedisclosed in any public filing with the Commission, except for (i) any such transaction that 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 quorumotherwise required for board approval), (ii) the establishment, modification or payment of reasonable and customary fees to Directors of the Company who are not officers or employees of any Company, (iii) the establishment or modificationof reasonable salaries, wages, and compensation plans for any officer or employee of the Company or any of its Subsidiaries, the making of payments to any of them thereunder, and the making, extension or modification of any loan or advance to any ofthem, provided that in the case of the executive officers of the Company such salaries and compensation plans have been expressly approved by a majority of the 

 

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disinterested directors of the Company (even if less than a quorum otherwise required for board approval), or (iv) the establishment, modification orimplementation of reasonable employment arrangements, stock option and purchase plans, and benefit programs for the directors, officers and employees of the Company and its Subsidiaries expressly approved by a majority of the disinterested directorsof the Company (even if less than a quorum otherwise required for board approval) and the resulting transactions thereunder; or 

g) enter into any agreement effecting or committing 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 forsuch 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 otheramounts 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 otherdefault under clause (B) above, is not cured within 3 Trading Days; 

ii. the Company shall fail to observe or performany other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below) which failure isnot cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder and (B) 10 Trading Days after the Company has become aware of such failure;

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document orinstrument) 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), whichdefault is not cured, if possible to cure, within the grace or cure period specified therein, or if none is so specified, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holderand (B) 10 Trading Days after the Company has become aware of such failure; 

iv. any representation or warranty made inthis 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 anymaterial respect as of the date when made or deemed made; 

 

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

vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or otherfacility, 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 capital lease or factoringarrangement that (a) involves an obligation greater than $250,000, 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 onwhich it would otherwise become due and payable; 

vii. the Common Stock shall not be eligible for listing or quotation fortrading 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 40% of its assets in one transaction or a series of related transactions (whether ornot such sale would constitute a Change of Control Transaction); 

ix.a Registration Statement shall not have been declared effective by the Commission on or prior to the 210th calendar day after the Closing Date;

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

xi. the Company shall fail for any reason to deliver certificates to a Holder prior to the tenth Trading Day after a Conversion Date orany Forced 

 

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Conversion Date pursuant to Section 4(d) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of theCompany’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or 

xii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any Subsidiary or any of their respective property or other assets for more than $250,000, and such judgment, writ or similar finalprocess shall remain unpaid, unvacated, unbonded or unstayed for a period of 45 calendar days. 

b) Remedies Upon Event ofDefault. If any Event of Default occurs and is continuing without being waived by the Holder or cured by the Company, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amountsowing 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 Trading Days after the occurrence of any Event of Default thatresults in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law, subject to Section 5.17of the Purchase Agreement. 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 notprovide, 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 otherremedies 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 Holderreceives 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 deliveredpersonally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, facsimile number **            ,Attention:                             **or such other facsimile number or address as the Companymay specify for such purpose by notice to the Holder delivered in accordance with this Section 9. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, byfacsimile, or sent by a nationally recognized overnight courier service addressed to the Holder at the facsimile number or address of such Holder appearing on the signature page of the Purchase Agreement or in any 

 

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transfer document delivered to the Company, as applicable, or such other facsimile number or address as such Holder may specify for such purpose by writtennotice to the Company delivered in accordance with Section 9. 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 isdelivered via facsimile at the facsimile number specified in this Section 9 prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimileat the facsimile number specified in this Section 9 between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of timely delivered to a nationally recognizedovernight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. Refusal to accept delivery shall constitute delivery. 

b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation ofthe 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 adirect 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 anddeliver, 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, and a customary indemnity agreement reasonably satisfactory to the Company. 

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall, tothe greatest extent permitted by applicable law, be governed by and construed and enforced in accordance with the internal laws of the State of New York and federal laws of the United States of America, without regard to any principles of conflictsof law thereof that would defer to the substantive laws of any other jurisdiction. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the TransactionDocuments (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 contemplatedhereby 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 thejurisdiction of such New 

 

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York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. The preceding consents to New York governing law andjurisdiction and venue in New York State's Supreme Court have been made by the parties in reliance (at least in part) on Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York, as amended (as and to the extentapplicable), and other applicable law. 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 orovernight 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 containedherein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. In any action, suit or proceeding in any jurisdiction brought by any party against any other party, each party, knowingly andintentionally and to the fullest extent permitted by applicable law, hereby absolutely, unconditionally, irrevocably and expressly waives forever trial by jury. If either party shall commence an action or proceeding to enforce any provisions of thisDebenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operateas 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 moreoccasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Company or the Holder must be in writing. 

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shallremain 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 duehereunder 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 itmay 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 orany portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent itmay lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer andpermit the execution of every such as though no such law has been enacted. 

 

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

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

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

j) Secured Obligation. The obligations of the Company under this Debenture and the other Debentures are (i) guarantiedpursuant to the Subsidiary Guarantee dated as of February     , 2007, from the Subsidiaries of the Company to and with the Purchasers (as defined therein), as the same may be supplemented, modified, amended, restated orreplaced from time to time in the manner provided therein (the “Subsidiary Guarantee”), and (ii) secured (and the obligations of the Subsidiary Guarantee also are secured) by substantially all personal assets and properties ofthe Company and each Subsidiary pursuant to the Security Agreement dated as of February     , 2007, between the Company, the Subsidiaries of the Company, the Agent and the Secured Parties (as defined therein), as the samemay be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein (the “Security Agreement”). 

k) Purchase Agreement. This Debenture is one of the Debentures referred to in the Purchase Agreement and other Transaction Documents. All of the applicable provisions of the Purchase Agreement, including(without limitation) any provision for limiting the maximum rate of interest payable hereunder, are incorporated herein by reference and made a part hereof. In the event that any specific provision of this Debenture conflicts or is inconsistent withany specific term or provision contained in the Purchase Agreement, the specific term or provision of the Purchase Agreement shall control and be given effect. However, this Agreement contains provisions that are in addition to those contained inthe Purchase Agreement, which each are cumulative with and not alternatives to each other, and which shall not be deemed or construed to be in conflict or inconsistent with the Purchase Agreement because they are not contained in it. 

 

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l) Amendment; Holder is a Party. This Debenture may not be supplemented, modified,amended, restated, waived, extended, discharged or terminated orally. This Debenture may only be (i) supplemented, modified, amended or restated in a writing signed by the Company and the Holder (or in the case of a restated or replacementDebenture, consented to in a separate writing by the Holder if the Holder elects not to sign such Debenture) and (ii) waived, extended, discharged or terminated in a writing signed by the party against whom such waiver, extension, discharge ortermination would have to be enforced. By accepting this Debenture, the Holder acknowledges and agrees that the Holder (A) is a “party” and one of the “parties” for the purposes of this Debenture and (A) iscontractually bound by the provisions hereof applicable to it as a party or one of the parties. 

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

 

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

 
**STAR ENERGY CORPORATION**By: 
 
Name: Title: 
 

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**ANNEX A**

**NOTICE OF CONVERSION**

The undersigned hereby elects to convert principal under the 8% SecuredConvertible Debenture due February     , 2010 of Star Energy Corporation, a Nevada corporation (the “Company”), into shares of common stock, par value $.001 per share (the “Common Stock”),of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect theretoand 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 notexceed 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 atIssue.
  Number of shares of Common Stock to be issued:  Signature:  Name:  Address:
 

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**Schedule 1**

**CONVERSION SCHEDULE**

The 8% Secured Convertible Debentures due on February     , 2010 inthe aggregate principal amount of $             are issued by Star Energy Corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referencedDebenture. 

Dated: 

 

**Date of Conversion**

**(or for first entry,**

**Original IssueDate)**
 
**Amount of Conversion**
 
**Aggregate Principal Amount**