Document:

ex10one.htm

     

     

    
 

    
      

    

    

    AMENDED
AND RESTATED CONVERTIBLE SECURED PROMISSORY NOTE

    

    
      	
              $250,000.00
      (USD)

            	 
      	
              Dallas,
      Texas

            
	 
      	 
      	
              August
      19, 2008

            

    

    

    FOR VALUE
RECEIVED, Gulf Onshore, Inc.., a Nevada corporation ("MAKER"), promises to pay,
in lawful money of the United States of America, to the order of South Beach
Live, Inc. a Florida corporation, ("HOLDER"), at 16928 Club Hill Dr. Dallas, TX
75248, or at such other place as Holder shall from time to time direct, the
principal amount of Two Hundred and Fifty Thousand and 00/100 U.S. Dollars
($250,000.00) (the "PRINCIPAL"), together with accrued interest on the unpaid
Principal (the "INTEREST"), as it exists from time to time, at the rate of ten
percent (10%) per annum (the "INTEREST RATE"), calculated from the date hereof
until paid in full in accordance with the following terms and
conditions:

    

    1.  PURCHASE
MONEY SECURITY INTEREST.   The funds due South Beach Live, Inc.
are for payment of the contracted purchase price for all the shares of Curado
Energy Resources, Inc. by Gulf Onshore, Inc.  To secure the payment of
the amounts due, Gulf Onshore, Inc. and Curado Energy Resources, Inc.,
respectively, hereby grant to South Beach Live, Inc. a security interest in all
of the shares of Curado Energy Resources, Inc., as well as all of its
assets.  Furthermore, Curado Energy Resources, Inc. guarantees the
payment of amounts due to South Beach Live, Inc. from Gulf Onshore, Inc., such
guarantee is secured by a security interest granted in all of the assets of
Curado Energy Resources, Inc.  The parties have executed a Security
Agreement and Guarantee Agreement, which are incorporated herein.

    

    2.  MATURITY.  The
entire unpaid Principal, together with accrued and unpaid Interest, if any, and
all other charges due hereunder, if any, shall be due and payable, unless sooner
paid, on the first (1st) anniversary of the date of this Note; provided,
however, upon the written agreement of Maker and Holder, such due date may be
extended by up to one (1) year (as applicable, the "MATURITY
DATE").

    

    3.  PAYMENTS.  All
unpaid Principal and accrued and unpaid Interest shall be due and payable on the
Maturity Date.

    

    4.  MANNER
OF PAYMENTS.  Principal and Interest, and all other charges due
hereunder, if any, shall be payable in U.S. Dollars at the office of Holder set
forth above, or at such other place as Holder from time to time may designate in
writing, without deduction or setoff.

    

    5.  ASSIGNMENT/ENDORSEMENT.  The
Holder may, from time-to-time, assign or endorse some or all of this Note, and
any related conversion rights, but not rights under the Security Agreement, to a
creditor, obligor or other purchaser, upon notice, but without approval of, the
Maker.  The Maker shall have the right to prepay this Note to Holder
prior to such assignment or endorsement, by tendering all amounts due to Holder
within one (1) business day of receipt of such notice.  In the event
Holder assigns or endorses only a portion of the Note, the assignee or endorsee
shall have the right to demand that Maker draft and execute
such

    
      
         

      

      
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    additional
number of Notes so as to reflect such transfer, canceling the original Note and
replacing it with as many Notes in as may be required, in the form of this Note,
each of which shall be binding on Maker.

    

    6.  CONVERSION.

    

    (a)  The Maker will also
authorize the issue of One Million (1,000,000) shares of its common stock
(hereinafter called "The Stock") and will authorize the issuance of and reserve
for such purchase such a number of additional shares of common stock
(hereinafter called the "Conversion Stock") as may from time to time be the
maximum number required for issuance upon conversion of the Note pursuant to the
conversion privileges hereinafter stated.

    

    (b)  A.  The Holder
of any of the Notes at any time up to and including the maturity date (or, as to
any of the Notes to which notice of prepayment shall have been given, at any
time up to the close of business on the third business day prior to the day
fixed for prepayment) but not thereafter may convert the Notes in whole or in
part into as many fully paid and nonassessable shares of Common Stock of the
Maker as the principal amount of the Note so converted in a multiple of Twenty
Five Cents (.25) per share, or such lesser amount as may be provided under
subsection D of this paragraph, and upon surrender of the certificate
representing the Notes to the Maker at its principal office in the City of
Addison, Texas. If any of the Notes shall be converted in part, the Maker shall,
at Holder’s option and without charge to the Holder, either (i) execute and
deliver to the Holder Notes for the balance of the principal amount so
converted, or (ii) make notes hereon as to the principal of the amount
converted.

    

    B.  Upon conversion of any of
the Notes, all accrued and unpaid interest on the principal amount converted
shall be paid to the Holder by the Maker.

    

    C.  The Maker shall take all
necessary steps to maintain the registration for the shares held subject to the
conversion privilege as described in this section.

    

    D.  In the case the Maker
shall issue or sell any share of its Common Stock (other than the Stock Shares
issued upon conversion of any of the Notes) without consideration or for
consideration per share less than the conversion price of Twenty Five Cents
(.25)  per share, then forthwith upon such issuance or sale, the
conversion price shall be adjusted to that price paid, or $.001 (par value) if
no consideration is paid or given.  Holder agrees that it will not
seek conversion at any price less than Twenty Five Cents (.25) per share prior
to the Maturity Date.

    

    E.  In case the Maker shall
at any time divide its outstanding shares of Common Stock into a greater number
of shares, the conversion price in effect immediately prior to such subdivision
should be proportionately reduced, and, conversely, in the case outstanding
shares of Common Stock of the Maker shall be combined into a smaller number of
shares, the actual conversion price in effect immediately prior to such
combination shall be proportionately increased.

    
      
         

      

      
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    F.  In
case the Maker shall declare a dividend or make a distribution of any Stock of
the Maker payable in Common Stock or in Convertible Securities, the aggregate
maximum number of shares of Common Stock issuable in payment of such dividend or
distribution, or upon conversion of or in exchange for such Convertible
Securities issuable in payment of such dividend or distribution, shall be deemed
to have been issued or sold without consideration.

    

    G.  No fractional share of
Common Stock shall be issued upon conversion of any of the Notes.  If
any Holder of the Notes shall have converted all the Notes held by him other
than a principal amount so small that less than a whole share of Common Stock
would be issuable upon conversion thereof, the Maker may elect to prepay such
balance, with interest accrued thereon to the date fixed for prepayment, or
leave the same outstanding until the maturity of the Note.

    

    H.  In any reclassification
or change of outstanding shares of Common Stock issuable upon conversion of the
Notes (other than a change in stated value) or in the case of any consolidation
or merger of the Maker with any other corporation, or in the case of the sale
and conveyance to another to another corporation or person of the property of
the Maker in its entirety or substantially as an entirety, the Maker shall, as a
condition precedent to such transaction, cause effective provisions to be made
that each Holder of the Notes then outstanding shall have the right thereafter
to convert the Notes into the kind and amount of shares of Stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a Holder of the number of shares of
Common Stock in the Maker into which such Notes might have been converted
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance.

    

    

    7.  PREPAYMENT.  The
Principal may be prepaid, in full or in part, at any time and from time to time,
without premium or penalty; provided, however, all accrued and unpaid Interest
must be  concurrently paid at the time of such prepayment of
Principal.

    

    8.  DEFAULT.  Maker
shall be in default under this Promissory Note upon the occurrence of any of the
following events (each, a "DEFAULT"):

    

    (a)  Maker fails to make any
payment of Principal or Interest when due, or fails to perform any of the terms,
conditions or obligations hereunder, and such failure continues for a period of
fifteen (15) calendar days after receipt by Maker from Holder of written notice
thereof;

    

    (b)  Maker shall file or have
filed against it, voluntarily or involuntarily, a petition for its winding up,
or shall procure or suffer the appointment of a receiver for any portion of its
properties or assets, or shall make an assignment for benefit of its creditors,
provided same is not cured within thirty (30) calendar days of such event
occurring;

    

    (c)  Maker ceases operations,
is dissolved, or terminates its existence; or

    

    (d)  any change of control of
Maker, such that it would be obligated to file a Form 8-K with the Securities
and Exchange Commission.

    
      
         

      

      
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    Upon a Default, the entire unpaid
Principal, together with accrued and unpaid Interest, and all other charges due
hereunder, if any, shall immediately become due and payable and Holder may
proceed at once to exercise any or all remedies available to Holder under this
Promissory Note or at law or equity. At such time as a judgment is obtained for
any amounts owing under this Promissory Note, interest shall continue to accrue
on the amount of the judgment at the Interest Rate.

    

    9.  OTHER
OBLIGATIONS.  Maker agrees to pay all costs of collection if suit be
brought. Costs of collection include, without limitation, reasonable attorneys'
fees if this Promissory Note is placed in the hands of attorneys for collection
(whether or not suit is brought to collect the amount past due), together with
all court costs, investigative costs and other expenses incurred in the
prosecution of any suit.

    

    10.  REMEDIES
CUMULATIVE.  All remedies herein given to Holder are cumulative and
not alternative, are in addition to all of the same which are available to
Holder under all statutes at law or in equity, and may be exercised in any order
or simultaneously, at Holder's sole election. Any forbearance or delay by Holder
in exercising the same shall not be deemed to be a waiver thereof, and the
exercise of any right or partial exercise thereof shall not preclude the further
exercise thereof, and the same shall continue in full force and effect until
specifically waived by an instrument in writing executed by Holder.

    

    11.  SEVERABILITY.  If
any provision of this Promissory Note is held to be invalid or unenforceable by
a court of competent jurisdiction, the other provisions of this Promissory Note
shall remain in full force and effect and shall be liberally construed in favor
of Holder in order to effect the provisions of this Promissory
Note.

    

    12.  WAIVER
OF ERRORS.  Maker hereby waives and releases all errors, defects and
imperfections in any proceedings instituted by Holder under the terms of this
Note, as well as all benefit that might accrue to Maker by virtue of any present
or future laws providing for any stay of execution to be issued on any judgment
recovered on this Promissory Note, and Maker agrees that any real or personal
property that may be levied upon pursuant to a judgment obtained by virtue
hereof, on any writ of execution issued thereon, may be sold upon any such writ,
in whole or in part, in any order desired by Holder.

    

    13.  WAIVER
OF NOTICES.  Maker hereby waives diligence, presentment for payment,
demand, notice of demand, notice of nonpayment or dishonor, protest and notice
of protest of this Promissory Note, and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the payment of
this Promissory Note, and agrees that Maker's liability hereunder shall not be
affected in any manner by any indulgence, extension of time, renewal, waiver or
modification granted or consented to by Holder. Maker consents to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
Holder with respect to the payment or other provisions of this Promissory Note,
with or without substitution.

    
      
         

      

      
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                    13.  NO
WAIVER.  Holder shall not be deemed, by any act of omission or
commission, to have waived any of its rights or remedies hereunder unless such
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in the writing. A waiver in one event shall not be
construed as continuing or as a bar to or waiver of any right or remedy to any
subsequent Default, or, in the event of continuance, of any existing
Default.

    

    14.  APPLICABLE
LAW.  This Note shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to the choice of law rules of
that State.

    

    15.  AMENDMENT.  This
Note shall in no event be amended or modified, except by an instrument in
writing executed by the party to be bound thereby.

    

    16.  NUMBER
AND GENDER.  Whenever used, the singular number shall include the
plural, the plural the singular, the use of any gender shall be applicable to
all genders, and the words "Holder" and "Maker" shall be deemed to include the
respective successors and assigns of Holder and Maker.

    

    17.  CAPTIONS.  The
captions set forth in this Note are for convenience only and do not comprise a
part of this Note.

    

    IN
WITNESS WHEREOF, this Note has been executed as of the date first hereinabove
written.

    

    
      	 
      	
              "MAKER"

            
	 
      	
              Gulf
      Onshore, Inc.

               

            
	
              By:

            	 
      
	 
      	 
      
	
              Name:

            	 
      
	
              Its:

            	
                                               
      President

            
	 
      	 
      
	 
      	
              “HOLDER”

            
	 
      	 
      
	 
      	
              South
      Beach Live, Inc.

            
	 
      	 
      
	
              By:

            	 
      
	 
      	 
      
	
              Name:

            	 
      
	
              Its:

            	
              Its:

            

    

    

    

    

    
      
         

      

      
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    SECURITY
AGREEMENT

    

    1.           Grant. On the 10th day of
June, 2008, Gulf Onshore, Inc., a Nevada corporation with its principal place of
business at 4310 Wiley Post Rd., Ste. 201, Addison, TX  75001
(hereinafter called "Debtor"), entered into a
Convertible Promissory Note in favor South Beach Live, Inc., a Florida
corporation with its principal place of business at 16928 Club Hill Dr. Dallas,
TX 75248 (hereinafter called "Secured Party") which is
incorporated herein as if set forth here in entirety.  Subsequently,
on August 19, 2008, Debtor and South Beach Live, Inc entered into an Amended and
Restated Convertible Promissory Note, in similar term and amount, and as part of
the valuable consideration therefore, receipt whereof is acknowledged by Debtor,
Debtor granted to South Beach Live, Inc. a security interest in, and mortgages
to Secured Party, the following described property and interests in property of
Debtor (hereinafter called the "Collateral"):

    

    All of
the Shares of Debtor’s wholly-owned subsidiary, Curado Energy Resources, Inc.,
and all of the Assets of Curado, including specifically any in any oil, gas or
mineral lease held by Curado in Throckmorton or Shackelford Co.,
Texas

    

    to secure
payment of the following obligations of Debtor to Secured Party (all hereinafter
called the "Obligations"):

    

    All
obligations and liabilities of Debtor to Secured Party (including without
limitation all debts, claims and indebtedness) whether primary, secondary,
direct, contingent, fixed or otherwise, heretofore, now and/or from time to time
hereafter owing, due or payable, however evidenced, created, incurred, acquired
or owing and however arising, or by oral agreement or operation of law or
otherwise, including but not by way of limitation, the Amended and Restated
Convertible Promissory Note.

    

    2.           Warranties and Covenants of
Debtor.  Debtor warrants and covenants that:

    

    (a)           Except
for the security interest granted hereby and the security interest granted to
Secured Party, Debtor is the owner of the Collateral free from any adverse lien,
security interest or encumbrance; and Debtor will defend the Collateral against
all claims and demands of all persons at any time claiming the same or any
interest therein.

    

    (b)           No
Financing Statement covering any of the Collateral or any proceeds thereof is on
file in any public office, except in favor of Secured Party.  The
Debtor shall immediately notify the Secured Party in writing of any change in
name, address, identity or corporate structure from that shown in this Agreement
and shall also upon demand furnish to the Secured Party such further information
and shall execute and deliver to Secured Party such financing statements and
other documents in form satisfactory to Secured Party and shall do all such acts
and things as Secured Party may at any time or from time to time reasonably
request or as may be necessary or appropriate to establish and maintain a
perfected security interest in the Collateral as security for the Obligations,
subject to no adverse liens or encumbrances; and Debtor will pay the cost of
filing the same or filing or recording this agreement in all public offices
wherever filing or recording is deemed by Secured Party to be necessary or
desirable.  A carbon, photographic or other reproduction of this
agreement is sufficient as a financing statement.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

                                   
(c)           Debtor will
not sell or offer to sell, assign, pledge, lease or otherwise transfer or
encumber the Collateral or any interest therein, without the prior written
consent of Secured Party.

    

    (d)           Debtor
shall keep the Collateral at all times insured against risks of loss or damage
by fire (including so-called extended coverage), theft and such other casualties
as Secured Party may reasonably require, including collision in the case of any
motor vehicles, all in such amounts, under such forms of policies, upon such
terms, for such periods and written by such companies or underwriters as Secured
Party may approve, losses in all cases to be payable to Secured Party and Debtor
as their interests may appear.  All policies of insurance shall
provide that Secured Party's interest therein shall not be invalidated by the
act, omission or neglect of anyone other than Secured Party and for at least ten
days' prior written notice of cancellation to Secured Party.  Debtor
shall furnish Secured Party with certificates of such insurance or other
evidence satisfactory to Secured Party as to compliance with the provisions of
this paragraph.  Secured Party may act as attorney for Debtor in
making, adjusting and settling claims under and cancelling such insurance and
endorsing Debtor's name on any drafts drawn by insurers of the
Collateral.

    

    (e)           Debtor
will keep the Collateral free from any adverse lien, security interest or
encumbrance and in good order and repair, shall not waste or destroy the
Collateral or any part thereof, and shall not use the Collateral in violation of
any statute, ordinance or policy of insurance thereon.

    

    (f)           Secured
Party may examine and inspect the Collateral at any reasonable time or times,
wherever located.

    

    (g)           Debtor
will pay promptly when due all taxes and assessments upon the Collateral or for
its use or operation or upon this Agreement or upon any note or notes evidencing
the Obligations.

    

    3.           Additional Rights of
Parties.  At its option, Secured Party may discharge taxes,
liens or security interests or other encumbrances at any time levied or placed
on the Collateral, may place and pay for insurance on the Collateral upon
failure by the Debtor, after having been requested to do so, to provide
insurance satisfactory to the Secured Party, and may pay for the maintenance,
repair, and preservation of the Collateral.  To the extent permitted
by applicable law, Debtor agrees to reimburse Secured Party on demand for any
payment made, or any expense incurred by Secured Party pursuant to the foregoing
authorization.  Until default Debtor may have possession of the
Collateral and use it in any lawful manner not inconsistent with this agreement
and not inconsistent with any policy of insurance thereon.

    

    4.           Events of
Default.  Debtor shall be in default under this agreement upon
the occurrence of any of the following events or conditions, namely: (a) default
in the payment or performance of any of the Obligations or of any covenants or
liabilities contained or referred to herein or in any of the Obligations; (b)
any warranty, representation or statement made or furnished to Secured Party by
or on behalf of Debtor proving to have been false in any material respect when
made or furnished; (c) loss, theft, substantial damage, destruction, sale or
encumbrance to or any of the Collateral, or the making of any levy, seizure or
attachment thereof or thereon; (d) dissolution, termination of existence, filing
by Debtor or by any third party against Debtor of any petition under any Federal
bankruptcy statute, insolvency, business

    
      
         

      

      
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    failure,
appointment of a receiver of any part of the property of, or assignment for the
benefit of creditors by, Debtor; (e) any change of control of Debtor, as that
term is used for purposes of SEC Regulation S-K, or (f) the occurrence of an
event of default in any agreement between Debtor and/or Secured
Party.

    

    5.           Remedies.  UPON
DEFAULT AND AT ANY TIME THEREAFTER, SECURED PARTY MAY DECLARE ALL OBLIGATIONS
SECURED HEREBY IMMEDIATELY DUE AND PAYABLE AND SHALL HAVE THE REMEDIES OF A
SECURED PARTY UNDER THE UNIFORM COMMERCIAL CODE OF TEXAS, including without
limitation the right to take immediate and exclusive possession of the
Collateral, or any part thereof, and for that purpose may, so far as Debtor can
give authority therefor, with or without judicial process, enter (if this can be
done without breach of the peace), upon any premises on which the Collateral or
any part thereof may be situated and remove the same therefrom (provided that if
the Collateral is affixed to real estate, such removal shall be subject to the
conditions stated in the Uniform Commercial Code of Texas); and the Secured
Party shall be entitled to hold, maintain, preserve and prepare the Collateral
for sale, until disposed of, or may propose to retain the Collateral subject to
Debtor's right of redemption in satisfaction of the Debtor's Obligations as
provided in the Uniform Commercial Code of Texas.  Secured Party
without removal may render the Collateral unusable and dispose of the Collateral
on the Debtor's premises.  Secured Party may require Debtor to
assemble the Collateral and make it available to Secured Party for possession at
a place to be designated by Secured Party which is reasonably convenient to both
parties.  Unless the Collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Secured Party will give Debtor at least 5 days' notice of the time and place of
any public sale thereof or of the time after which any private sale or any other
intended disposition thereof is to be made.  The requirements of
reasonable notice shall be met if such notice is mailed, postage prepaid, to the
address of Debtor shown at the beginning of this agreement at least ten days
before the time of the sale or disposition.  Secured Party may buy at
any public sale.  The net proceeds realized upon any such disposition,
after deduction for the expenses of retaking, holding, preparing for sale or
lease, selling, leasing and the like and the reasonable attorney's fees and
legal expenses incurred by Secured Party, shall be applied in satisfaction of
the Obligations secured hereby.  The Secured Party will account to the
Debtor for any surplus realized on such disposition and the Debtor shall remain
liable for any deficiency.

    

    The
remedies of the Secured Party hereunder are cumulative and the exercise of any
one or more of the remedies provided for herein or under the Uniform Commercial
Code of Texas shall not be construed as a waiver of any of the other remedies of
the Secured Party so long as any part of the Debtor's Obligation remains
unsatisfied.

    

    6.           General.  No
waiver by Secured Party of any default shall operate as a waiver of any other
default or of the same default on a future occasion.  All rights of
Secured Party hereunder shall inure to the benefit of its successors and
assigns; and all obligations of Debtor shall bind its successors or
assigns.  If there be more than one Debtor, their obligations
hereunder shall be joint and several.  This agreement shall become
effective when it is signed by Debtor.

    

    All
rights of the Secured Party in, to and under this agreement and in and to the
Collateral shall pass to and may be exercised by any assignee
thereof.  The Debtor agrees that if the Secured Party gives notice to
the Debtor of an assignment of said rights, upon such notice the liability of
the Debtor to the assignee shall be immediate and absolute.  The
Debtor will not

    
      
         

      

      
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    set up
any claim against the Secured Party as a defense, counterclaim or set-off to any
action brought by any such assignee for the unpaid balance owed hereunder or for
the possession of the Collateral, provided that Debtor shall not waive hereby
any right of action to the extent that waiver thereof is expressly made
unenforceable under applicable law.

    

    If any
provision of this agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this agreement.

    

    Secured
Party:                                                         Debtor:

    

    By:___________________________                      By:____________________________

    Its:                                                                           Its:

    

    

    Curado Energy Resources,
Inc.

    

    By:                                                      

    Its:

    

    

    

    
      
         

      

      
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    ASSIGNMENT

    

    FOR VALUE
RECEIVED, the Secured Party sells, assigns and transfers to
____________________________________________, its successors and assigns with
recourse, all right, title and interest in, to and under the foregoing agreement
and in and to the Collateral therein described, with authority to take either in
its own name or in the name of the Secured Party, but for its own benefit, all
such proceedings, legal or equitable, as the Secured Party might have taken but
for this assignment.

    The
Secured Party warrants that the foregoing agreement represents a valid security
agreement as provided under the laws of the State of
________________.

    

    *__________________________________

    

    By:________________________________

    Its:

    

    
      
         

      

      
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    Guaranty
Agreement

     

     

    This Guarantee Agreement is entered
into by Curado Energy Resources, Inc., a Texas corporation, in favor of South
Beach Live, Inc., a Florida corporation, to guarantee an obligation of Gulf
Onshore, Inc., a Nevada corporation.  Gulf Onshore purchased all of
the shares of Curado from South Beach, providing a Promissory Note as
consideration.  Curado acknowledges that is has and will receive
substantial benefit from its acquisition by Gulf Onshore, and in furtherance of
this transaction provides this guarantee.

     

     

    For value received, and in
consideration of, and in order to induce South Beach to accept a promissory note
from Gulf Onshore in exchange for all of the shares of Curado, Curado hereby
unconditionally guarantees to South Beach the full and prompt performance by
Gulf Onshore of all obligations under the promissory note that Gulf Onshore
presently or hereafter may have, and under any other agreement related to it,
including but not limited to, the Security Agreement in favor of South
Beach.

     

     

    Curado furthermore agrees to indemnify
South Beach against any losses it may sustain and expenses it may incur as a
result of any default by Gulf Onshore under the promissory note and/or as a
result of the enforcement or attempted enforcement by South Beach of any of its
rights against Gulf Onshore or Curado under the promissory note or Security
Agreement.

     

     

    Curado expressly waives all defenses
which might constitute a legal or equitable discharge of a surety or guarantor,
and agree that this guaranty shall be valid and unconditionally binding upon it
regardless of:

     

     

    1.
Reorganization, merger or consolidation of Gulf Onshore or Curado into or with
another entity, corporate or otherwise, or the sale or other disposition of all
or substantially all of the capital stock, business or assets of lessee to any
other person or party, or

     

     

    2.  The
dissolution of Gulf Onshore or Curado, or

     

     

    3. The
voluntary or involuntary bankruptcy (including a reorganization in bankruptcy)
of Gulf Onshore or Curado.

     

     

    South
Beach waives notice of and consent to Curado or Gulf Onshore’s operation of and
receipt of any and all revenues derived from any of the assets of Curado,
including any oil and gas production, or payment for lease, sublease or farmout
of any oil and gas properties, as well as the disposition or assignment of any
interest in non-producing oil or gas wells.  South Beach does not
waive notice of the sale or disposition of any producing oil and gas leasehold
interest, and reserves the right to purchase such property at the offered
price.

     

    
      
         

      

      
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      The
parties agree that this guaranty shall remain and continue in full force and
effect notwithstanding any renewal, modification or extension of the promissory
note, and Curado expressly waives all notice of and consent to any such renewal,
modification or extension and to the execution by Gulf Onshore of any documents
pertaining to it.

     

     

    Curado
further agrees that its liability under this guaranty shall be absolute primary
and direct, and that South Beach shall not be required to pursue any right or
remedy it may have against Gulf Onshore under the promissory note or otherwise
(and shall not be required to first commence any action or obtain any judgment
against Gulf Onshore) before enforcing this guaranty against Curado, and that
Curado will upon demand, pay South Beach any and all amounts due under the
promissory note in the event that Gulf Onshore defaults under any provision of
the promissory note.

     

     

    Curado
agrees furthermore that the failure of South Beach to insist in any one or more
instances upon a strict performance or observance of any of the terms,
provisions or covenants of the promissory note or Security Agreement, or to
exercise any of its rights under them, shall not be construed or deemed to be a
waiver or relinquishment for the future of any such terms, provisions, covenants
or rights, but such terms, provisions, covenants and rights shall continue and
remain in full force and effect.

     

     

    No
assignment or other transfer by South Beach of any interest, right or obligation
under the promissory note shall extinguish or diminish the unconditional
absolute primary and direct liability of Curado under this guaranty. Curado
consents to and waives all notice of any such assignment, transfer or
assumption.   Furthermore, any such assignee or transferee shall
have all of the rights of South Beach and may enforce this guaranty against
Curado with the same force and effect as if this guaranty were given to such
assignee in the first instance. This guaranty shall inure to the benefit of
South Beach, and its successors and assigns, and shall be binding upon Curado
and its successors and assigns.

     

     

    This
guaranty shall be governed as to validity, interpretation, effect and in all
other respects by the laws and decisions of the State of Texas. The undersigned
do submit to the jurisdiction of any court (federal, state or local) having
situs within the State of Texas, expressly waiving personal service of process
and consent to service by certified or registered mail, return receipt
requested, directed to the last known address of the undersigned, which service
shall be deemed completed within 10 days after the date of mailing.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    

     

     

    In
witness, the undersigned have executed this guaranty this 26th day of
August, 2008.

     

     

    

     

     

    Curado
Energy Resources, Inc.

     

     

    
________________________________________

     

     

    By:             ________________________________                                                   

     

     

    Its:             ________________________________                                                   

     

     

    

     

     

    Gulf
Onshore, Inc.

     

     

     

    ________________________________________

    

     

     

    By:           
________________________________                                                          

     

     

    Its:           
________________________________                                                     

     

     

    

     

     

    South
Beach Live, Inc.

     

     

     

    ________________________________________

    

     

     

    By:         __________________________________                                                           

     

     

    Its:          __________________________________                                                      

     

     

    

     

     

    

     

    

    
      
         

      

      
        3ex4_1.htm

    
      

    

    
      	
              Exhibit
      4.1

            	
              Form
      of Convertible Debenture.

            

    

     

     

    $_______________

    

    

    10%
CONVERTIBLE DEBENTURE

    DUE
SEPTEMBER ___, 2012

    

    THIS 10%
CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued
10% Convertible Debentures of Hyperdynamics Corporation, a Delaware corporation,
(the “Company”), having its
principal place of business at _____________________________, designated as its
10% Convertible Debenture due September ___, 2012 (this debenture, the “Debenture” and,
collectively with the other debentures of such series, 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 September ___, 2012 (the “Maturity Date”) or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof.  This Debenture is subject to
the following additional provisions:

    

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

     

    “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.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    “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(c)(ii).

    

    “Business Day” means
any day except any Saturday, any 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 (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, or (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 or within a three year period 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
date hereof (or by those individuals who are serving as members of the Board of
Directors on any date whose nomination to the Board of Directors was approved by
a majority of the members of the Board of Directors who are members on the date
hereof), 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.

    

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

    

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

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    “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).

    

    “Equity
Conditions” means, during the period in question, (a) 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,
(b) the Company
shall have paid all liquidated
damages and other amounts owing to the Holder
in
respect of this
Debenture, (c)(i)
with respect to shares of Common Stock issuable as Interest Conversion
Shares only, there is an effective registration statement pursuant to which the
Company is permitted to utilize the prospectus thereunder to issue the Interest
Conversion Shares or the Holder is permitted to utilize the prospectus
thereunder to resell all of the Interest Conversion Shares (and the Company
believes, in good faith, that such effectiveness will continue uninterrupted for
the foreseeable future) or (ii) with respect to shares of Common Stock issuable
pursuant to Section 4 or 6 hereof (including shares issuable in lieu of a cash
payment of interest a Monthly Redemption Make-Whole Interest Amount, Optional
Redemption Make-Whole Interest Amount  and Voluntary Conversion
Make-Whole Interest Payment), there is an
effective Registration Statement pursuant to which the Company is permitted to
utilize the prospectus thereunder to issue or the Holder is permitted to utilize
the prospectus thereunder to sell all of the other shares of Common Stock
issuable pursuant to the Transaction Documents (and the Company believes, in
good faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (d) the Common Stock is trading on a Trading Market and all
of the shares issuable pursuant to the Transaction Documents are listed or
quoted for trading on such Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future),
(e) there is a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock for the issuance of all of the shares issuable
pursuant to the Transaction Documents, (f) there is no existing Event of Default
or no existing event which, with the passage of time or the giving of notice,
would constitute an Event of Default, (g) the issuance of the shares in question
(or, in the case of an Optional Redemption or Monthly Redemption, the shares
issuable upon conversion in full of the Optional Redemption Amount or Monthly
Redemption Amount) to
the Holder would not violate the limitations set forth in Section 4(c)(i) and
Section 4(c)(ii) herein, (h) there has been
no
public announcement of a pending or proposed Fundamental Transaction or
Change of
Control Transaction that has
not been
consummated, (i) the Holder is not in
possession of any information provided by the Company that constitutes, or may
constitute, material non-public information and (j) for each Trading Day
in a period of 20 consecutive Trading Days prior to the applicable date in
question, the daily trading volume for the Common Stock on the principal
Trading
Market exceeds
75,000 shares
(subject to adjustment for forward and reverse stock splits and the
like) per Trading
Day.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    “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).

    

    “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 average of 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 such delivery
is after the Interest Payment Date.

    

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

    

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

    

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

    

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

    

    “Issuable Maximum”
shall have the meaning set forth in Section 4(c)(i).

    

    “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, (b) all other
amounts, costs, expenses and liquidated damages due in respect of this Debenture
and (c) an amount equal to all interest that would have accrued if the principal
amount subject to such Mandatory Default had remained outstanding through
September ___, 2012.

    

    “Monthly Conversion
Period” shall have the meaning set forth in Section 6(b)
hereof.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    “Monthly Conversion
Price” shall have the meaning set forth in Section 6(b)
hereof.

    

    “Monthly Redemption”
means the redemption of this Debenture pursuant to Section 6(b)
hereof.

    

     “Monthly
Redemption Amount” means, as to a Monthly Redemption, the sum of (a)
$[______1, (b) plus
accrued but unpaid interest, liquidated damages and any other amounts then owing
to the Holder in respect of this Debenture and (c) an amount equal to all interest
that would have accrued if the principal amount subject to such
Monthly  Redemption had remained outstanding through September ___,
2012 (such amount, the “Monthly
Redemption Make-Whole Interest Amount”).

    

    “Monthly Redemption
Date” means the ___2 of each month, commencing
immediately upon the one year anniversary of the Original Issue
Date.

    

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

    

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

    

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

    

    “Optional
Redemption Amount” means the sum of (a)(i) from the Original Issue Date
until the
120th
day following the Original Issue Date, 110% of the then outstanding principal
amount of the Debenture and (ii) from the 120th
day following the Original Issue Date until the Debenture is no longer
outstanding, (x) 100% of the then outstanding principal amount of the
Debenture plus (y) an amount equal
to all interest that would have accrued if the principal amount subject to such
Optional Redemption had remained outstanding through September ___, 2012 (such
amount, the “Optional
Redemption Make-Whole Interest Amount”), (b) accrued but unpaid
interest, and (c) all
liquidated damages and other amounts due in respect of the
Debenture.

    

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

    

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

    

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

    

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

    
 

    __________________ 

      1 1/36 of
the original principal amount.

    

    
      2 The
numerical date of closing.

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    “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(z)
attached to the Purchase Agreement, (c) lease obligations and purchase money
indebtedness of up to $2,000,000, 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) up to $10,000,000 of non-equity linked
indebtedness owing to a commercial lender under commercial lines of
credit.

    

    “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; (c) Liens incurred in connection with Permitted
Indebtedness under clauses (a) and (b) thereunder; 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.

     

    “Pre-Redemption Conversion
Shares” shall have the meaning set forth in Section 6(b)
hereof.

    

    “Purchase Agreement”
means the Securities Purchase Agreement, dated as of August 29, 2008 among the
Company and the original Holders, as amended, modified or supplemented from time
to time in accordance with its terms.

    

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

    

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

    

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

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

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

    

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

    

    “Trading Day” means a
day on which the New York Stock Exchange is open for business.

    

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

    

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

    

    “Voluntary Conversion
Make-Whole Interest Payment” shall have the meaning set forth in Section
4(d)(ii).

    

    “VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from
9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); if the Common
Stock is not then quoted for trading on the OTC Bulletin Board and if prices for
the Common Stock are then reported in the “Pink Sheets” published by Pink 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 (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 10% 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 Monthly
Redemption Date (as to that principal amount then being redeemed), on each
Conversion Date (as to that principal amount then being converted), on each
Optional Redemption Date (as to that principal amount then being redeemed) and
on the Maturity Date (each such date, an “Interest Payment
Date”) (if any Interest Payment Date is not a Business Day, then the
applicable payment shall be due on the next succeeding Business Day), in cash
or, at the Company’s option, in 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 Share
Amount”) or a combination thereof; provided, however, that payment
in shares of Common Stock may only occur if (i) all of the Equity Conditions
have been met (unless waived by the Holder in writing) during the 20 Trading
Days immediately prior to the applicable Interest Payment Date  (the
“Interest Notice
Period”) and through and including the date such shares of Common Stock
are actually issued to the Holder, (ii) the Company shall have given the Holder
notice in accordance with the notice requirements set forth below and (iii) as
to such Interest Payment Date, prior to such Interest Notice Period (but not
more than five (5) Trading Days prior to the commencement of such Interest
Notice Period), the Company shall have delivered to the Holder’s account with
The Depository Trust Company a number of shares of Common Stock to be applied
against such Interest Share Amount equal to the quotient of (x) the applicable
Interest Share Amount divided by (y) the lesser of the (i) then Conversion Price
and (ii) the Interest Conversion Rate assuming for such purposes that the
Interest Payment Date is the Trading Day immediately prior to the commencement
of the Interest Notice Period (the “Interest Conversion
Shares”).  In addition, in connection with all conversions
pursuant to Section 4 and all Monthly and Optional Redemptions, the Company
shall pay the Holder the Voluntary Conversion Make-Whole Interest Payment,
Monthly Redemption Make-Whole Interest Amount and Optional Redemption Make-Whole
Interest Amount, as applicable.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

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

    

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

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    d)           Late
Fee.  All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at an interest rate equal to the lesser of 18%
per annum or the maximum rate permitted by applicable law (the “Late Fees”) which
shall accrue daily from the date such interest is due hereunder through and
including the date of actual payment in full. Notwithstanding anything to the
contrary contained herein, if, on any Interest Payment Date the Company has
elected to pay accrued interest in the form of Common Stock but the Company is
not permitted to pay accrued interest in Common Stock because it fails to
satisfy the conditions for payment in Common Stock set forth in Section 2(a)
herein, then, at the option of the Holder, the Company, in lieu of delivering
either shares of Common Stock pursuant to this Section 2 or paying the regularly
scheduled interest payment in cash, shall deliver, within three (3) Trading Days
of each applicable Interest Payment Date, an amount in cash equal to the product
of (x) the number of shares of Common Stock otherwise deliverable to the Holder
in connection with the payment of interest due on such Interest Payment Date
multiplied by (y) the highest VWAP during the period commencing on the Interest
Payment Date and ending on the Trading Day prior to the date such payment is
actually made.  If any Interest Conversion Shares are issued to the
Holder in connection with an Interest Payment Date and are not applied against
an Interest Share Amount, then the Holder shall promptly return such excess
shares to the Company.

    

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

    

    Section
3.             Registration of Transfers
and Exchanges.

    

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

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    

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

    

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

    

    Section
4.             Conversion.

    

    a)           Voluntary Conversion.
At any time after the Original Issue Date until this Debenture is no longer
outstanding, this Debenture shall be convertible, in 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(c)
hereof).  The Holder shall effect conversions by delivering to the
Company a Notice of Conversion, the form of which is attached hereto as Annex A (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 1 Business Day of delivery of such Notice of
Conversion.  In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest
error. The Holder, and any
assignee by acceptance of this Debenture, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.

    

    b)           Conversion
Price.  The conversion price in effect on any Conversion Date
shall be equal to $2.25,
subject to adjustment herein (the “Conversion
Price”).

    

    c)           Conversion
Limitations.

    
      
         

      

      
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    i.          Issuance
Limitations.   Notwithstanding anything herein to the
contrary, if the Company has not obtained Shareholder Approval, then the Company
may not issue, upon conversion of this Debenture, a number of shares of Common
Stock which, when aggregated with any shares of Common Stock issued on or after
the Original Issue Date and prior to such Conversion Date (A) in connection with
the conversion of any Debentures issued pursuant to the Purchase Agreement, (B)
in connection with the exercise of any Warrants issued pursuant to the Purchase
Agreement and (C) in connection with any warrants issued to any registered
broker-dealer as a fee in connection with the issuance of the Securities
pursuant to the Purchase Agreement, would exceed _______3 shares of Common Stock
(subject to adjustment for forward and reverse stock splits, recapitalizations
and the like) (such number of shares, the “Issuable
Maximum”).  Each Holder shall be entitled to a portion of the
Issuable Maximum equal to the quotient obtained by dividing (x) the original
principal amount of the Holder’s Debenture by (y) the aggregate original
principal amount of all Debentures issued on the Original Issue Date to all
Holders.  In addition, each Holder may allocate its pro-rata portion
of the Issuable Maximum among Debentures and Warrants held by it in its sole
discretion. Such portion shall be adjusted upward ratably in the event a Holder
no longer holds any Debentures or Warrants and the amount of shares issued to
the Holder pursuant to the Holder’s Debentures and Warrants was less than the
Holder’s pro-rata share of the Issuable Maximum.  For avoidance of
doubt, unless and until any required Shareholder Approval is obtained and
effective, warrants issued to any registered broker-dealer as a fee in
connection with the Securities issued pursuant to the Purchase Agreement as
described in (C) above shall provide that such warrants shall not be allocated
any portion of the Issuable Maximum and shall be unexercisable unless and until
such Shareholder Approval is obtained and effective.

    
_____________________

    
      3 19.99%
of the number of shares of Common Stock outstanding on the Trading Day
immediately preceding the date of the Purchase Agreement.

    

    
      
         

      

      
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    ii.         Holder’s Restriction on
Conversion. The Company shall not effect any conversion of this
Debenture, and a Holder shall not have the right to convert any portion of this
Debenture, to the extent that after giving effect to the conversion set forth on
the applicable Notice of Conversion, the Holder (together with the Holder’s
Affiliates, and any other person or entity 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 (A) conversion of the remaining, unconverted
principal amount of this Debenture beneficially owned by the Holder or any of
its Affiliates and (B) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company  subject to a
limitation on conversion or exercise analogous to the limitation contained
herein (including, without limitation, any other Debentures or the Warrants)
beneficially owned by the Holder or any of its Affiliates.  Except as set
forth in the preceding sentence, for purposes of this Section 4(c)(ii),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.  To
the extent that the limitation contained in this Section 4(c)(ii) 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(c)(ii), 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: (A) the Company’s most recent periodic or
annual report, as the case may be; (B) a more recent public announcement by the
Company; or (C) a more recent notice by the Company or the Company’s transfer
agent setting forth the number of shares of Common Stock outstanding.  Upon
the written or oral request of a Holder, the Company shall within two Trading
Days confirm orally and in writing to 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(c)(ii), 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(c)(ii) 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(c)(ii) 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.

    
      
         

      

      
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              d)

            	
              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 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 shall be free of restrictive legends and trading restrictions representing
the number of shares of Common Stock being acquired upon the conversion of this
Debenture (including, if the Company has given continuous notice pursuant to
Section 2(b) for payment of interest in shares of Common Stock at least 20
Trading Days prior to the date on which the Notice of Conversion is delivered to
the Company, shares of Common Stock representing the payment of accrued interest
otherwise determined pursuant to Section 2(a) but assuming that the Interest
Notice Period is the 20 Trading Days period immediately prior to the date on
which the Notice of Conversion is delivered to the Company and excluding for
such issuance the condition that the Company deliver Interest Conversion Shares
as to such interest payment), (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) and (C) a bank check or wire
transfer in the amount equal to all interest that would have accrued if the
principal amount subject to such Notice of Conversion had remained outstanding
through September ___, 2012 (the amount of such interest on each conversion of
this Debenture, a “Voluntary Conversion
Make-Whole Interest Payment”). The
Company shall use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section 4(d) electronically
through the Depository Trust Company or another established clearing corporation
performing similar functions.  Notwithstanding the foregoing, the Company shall be
permitted to make a Voluntary Conversion Make-Whole Interest Payment in shares
of Common Stock based on a conversion price equal to the lesser of (i) the then
Conversion Price, (ii) 85% of the average of the VWAPs for the 20 consecutive
Trading Days ending on the Trading Day that is immediately prior to the
applicable Share Delivery Date (subject to adjustment for any stock dividend,
stock split, stock combination or other similar event affecting the Common Stock
during such 10 Trading Day period) or (iii) 85% of the average of the VWAPs for
the 10 consecutive Trading Days ending on the Trading Day that is immediately
prior to the date of the applicable Notice of Conversion (subject to adjustment
for any stock dividend, stock split, stock combination or other similar event
affecting the Common Stock during such 20 Trading Day period) if: (x) all of the
Equity Conditions have been met (unless waived by the Holder in writing) during
the 20 Trading Days immediately prior to the applicable Conversion Date and
through and including the date such shares of Common Stock are actually issued
to the Holder and (y) the Company shall have provided written notice to
the Holder at least 20 Trading Days prior to such conversion (which notice may
be given on a continuous basis to the Holder) that the Company elects to make
the Voluntary Conversion Make-Whole Interest Payment in shares of Common Stock
rather than cash, provided that the Company shall have the right to deliver such
notice to the Holder at the Closing which notice shall be effective immediately
without having to meet the 20 Trading Day prior notice requirement.  The Company’s election to pay a Voluntary
Conversion Make-Whole Interest Payment in shares of Common Stock shall be
applied ratably to all of the holders of the then outstanding Debentures that
submit a Notice of Conversion on the same day based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement.

    
      
         

      

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

    

    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(d)(ii) by the third Trading Day after the Conversion 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 third (3rd)
Trading Day until such certificates are
delivered.    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.

    
      
         

      

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

    
      
         

      

      
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    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 outstanding principal amount of this Debenture and payment of interest
hereunder.  The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if a registration statement is then effective
under the Securities Act, shall be registered for public sale in accordance with
such registration statement.

    

    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
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.

    

    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.

    
      
         

      

      
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    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.

    

    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.  In addition, for clarity, any adjustment to the conversion
price, exchange price or exercise price of the Yorkville Warrants shall not
constitute an Exempt Issuance, and, any such adjustment to an effective price
per share that is lower than the then Conversion Price shall constitute a
Dilutive Issuance subject to this Section 5(b). 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 1 Business 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.

     

    
      
         

      

      
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    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 Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share that is lower than the VWAP on the record date
referenced below, then the Conversion Price shall be multiplied by a fraction of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered (assuming delivery to the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP.  Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.

    

    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 so distributed applicable to 1 outstanding share of the Common
Stock as determined by the Board of Directors of the Company in good
faith.  In either case the adjustments shall be described in a
statement delivered to the Holder describing the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to 1 share
of Common Stock.  Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.

    
      
         

      

      
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    e)           Fundamental
Transaction. If, at any time while this Debenture is outstanding, (i) the
Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of its
assets in one transaction or a series of related transactions, (iii) any tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (iv) 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 other securities, cash or property (in any such case, a “Fundamental
Transaction”), then, upon any subsequent conversion of this Debenture,
the Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of 1 share of Common Stock (the “Alternate
Consideration”).  For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of 1 share of Common Stock in such Fundamental Transaction,
and the Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration.  If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction.  To the extent
necessary to effectuate the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall issue to the Holder a
new debenture consistent with the foregoing provisions and evidencing the
Holder’s right to convert such debenture into Alternate Consideration. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this Section 5(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, 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.

    
      
         

      

      
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    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, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be delivered to the Holder at its last address as it shall appear upon
the Debenture Register, at least 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.  The Holder is entitled to convert this Debenture
during the 20-day period commencing on the date of such notice through the
effective date of the event triggering such notice.

    

    
      
         

      

      
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    Section
6.             Redemption.

     

    a)           Optional
Redemption at Election of Company.  Subject to the
provisions of this Section 6(a), at any time
after the Original
Issue 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
Redemption Notice Date”) of its
irrevocable election to redeem some or all of the then outstanding principal
amount of this Debenture for cash in an amount equal to the Optional
Redemption Amount on (i) as to an Optional Redemption prior to the
120th day
following the Original Issue Date, the 10th Trading
Day following the Optional Redemption Notice Date and (ii) as to an Optional
Redemption following the 120th day
following the Original Issue Date, the 20th Trading
Day following the Optional Redemption Notice Date (such date, the “Optional
Redemption Date”, such 10
Trading Day
period or 20 Trading
Day period, as applicable,
the “Optional
Redemption Period” and such
redemption, the “Optional
Redemption”).  The
Optional Redemption Amount is payable in full on the Optional Redemption
Date.  The Company may only effect an Optional Redemption if each of
the applicable Equity
Conditions shall have been met (unless
waived in writing by the Holder) 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 of the applicable Equity
Conditions shall cease to be satisfied at any time during the Optional
Redemption 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 Equity Condition has not been met (provided that if, by a
provision of the Transaction Documents, the
Company is obligated to notify the Holder of the non-existence of an Equity
Condition, such notice period shall be extended to the third Trading Day after
proper notice from the Company) in which case the Optional Redemption Notice
shall be null and void, ab initio.  The
Company covenants and agrees that it will honor all Notices of
Conversion (and pay all Voluntary Conversion Make-Whole Interest Payments in
connection therewith) tendered from the time of delivery of the Optional
Redemption Notice through the date all amounts owing thereon are due and paid in
full. The Company’s determination to pay an Optional Redemption in
cash shall be applied ratably to all of the holders of the then outstanding
Debentures based on their (or their predecessor’s) initial purchases of
Debentures pursuant to the Purchase Agreement. Notwithstanding the foregoing, as
to Optional Redemptions that occur on or after the 120th
day following the Original Issue Date, the Company shall be permitted to
make pay the Optional Redemption Make-Whole Interest Amount portion of an
Optional Redemption Amount in shares of Common Stock based on a conversion price
equal to the lesser of (i) the then Conversion Price, (ii) 85% of the average of
the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is
immediately prior to the applicable Optional Redemption Date (subject to
adjustment for any stock dividend, stock split, stock combination or other
similar event affecting the Common Stock during such 20 Trading Day period) or
(iii) 85% of the average of the VWAPs for the 20 consecutive Trading Days ending
on the Trading Day that is immediately prior to the date of the applicable
Optional Redemption Notice Date (subject to adjustment for any stock dividend,
stock split, stock combination or other similar event affecting the Common Stock
during such 20 Trading Day period) if: (x) all of the Equity Conditions have
been met (unless waived by the Holder in writing) during the 20 Trading Days
immediately prior to the applicable Optional Redemption Notice Date and through
and including the date such shares of Common Stock are actually issued to the
Holder and (y) the Company shall have provided the Holder notice on the same day
it delivers the applicable Optional Redemption Notice of its intention to pay
all or a portion of the Optional Redemption Make-Whole Interest Amount in shares
of Common Stock.  The Company’s election to pay an Optional Redemption
Make-Whole Interest Amount in shares of Common Stock shall be applied ratably to
all of the holders of the then outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement.

     

    b)           Monthly
Redemption.  On each Monthly Redemption Date, the Company shall
redeem the Monthly Redemption Amount (the “Monthly Redemption”).
The Monthly Redemption Amount payable on each Monthly Redemption Date shall be
paid in cash; provided, however, as to any
Monthly Redemption and upon 10 Trading Days’ prior written irrevocable notice
(the “Monthly
Redemption Notice”), in lieu of a cash redemption payment the Company may
elect to pay all or part of a Monthly Redemption Amount in Conversion Shares
based on a conversion price equal to the lesser of (i) the then Conversion Price
and (ii) 85% of the average of the VWAPs for the 10 consecutive Trading Days
ending on the Trading Day that is immediately prior to the applicable Monthly
Redemption Date (subject to adjustment for any stock dividend, stock split,
stock combination or other similar event affecting the Common Stock during such
10 Trading Day period) (the price calculated during the 10 Trading Day period
immediately prior to the Monthly Redemption Date, the “Monthly Conversion
Price” and such 10 Trading Day period, the “Monthly Conversion
Period”); provided, further, that the
Company may not pay the Monthly Redemption Amount in Conversion Shares unless
(y) from the date the Holder receives the duly delivered Monthly Redemption
Notice through and until the date such Monthly Redemption is paid in full, the
applicable Equity Conditions have been
satisfied, unless waived in writing by the Holder, and (z) as to such Monthly
Redemption, prior to such Monthly Conversion Period (but not more than 5 Trading
Days prior to the commencement of the Monthly Conversion Period), the Company
shall have delivered to the Holder’s account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Monthly Redemption
Amount equal to the quotient of (x) the applicable Monthly Redemption Amount
divided by (y) the lesser of (A) the Conversion Price and (B) 85% of the average
of the 10 VWAPs during the period ending on the 3rd Trading
Day immediately prior to the date of the Monthly Redemption Notice (the “Pre-Redemption Conversion
Shares”).  The Holder may convert, pursuant to Section 4(a),
any principal amount of this Debenture subject to a Monthly Redemption at any
time prior to the date that the Monthly Redemption Amount, plus accrued but
unpaid interest, liquidated damages and any other amounts then owing to the
Holder are due and paid in full.  Unless otherwise indicated by the
Holder in the applicable Notice of Conversion, any principal amount of this
Debenture converted during the applicable Monthly Conversion Period until the
date the Monthly Redemption Amount is paid in full shall be first applied to the
principal amount subject to the Monthly Redemption Amount payable in cash and
then to the Monthly Redemption Amount payable in Conversion
Shares.  Any principal amount of this Debenture converted during the
applicable Monthly Conversion Period in excess of the Monthly Redemption Amount
shall be applied against the last principal amount of this Debenture scheduled
to be redeemed hereunder, in reverse time order from the Maturity Date; provided, however, if any such
conversion is applied against such Monthly Redemption Amount, the Pre-Redemption
Conversion Shares, if any were issued in connection with such Monthly Redemption
or were not already applied to such conversions, shall be first applied against
such conversion.  The Company covenants and agrees that it will honor
all Notices of Conversion tendered up until such amounts are paid in
full.  The Company’s determination to pay a Monthly Redemption in
cash, shares of Common Stock or a combination thereof shall be applied ratably
to all of the holders of the then outstanding Debentures based on their (or
their predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement.  At any time the Company delivers a notice to the Holder of
its election to pay the Monthly Redemption Amount in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing such
election.

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

     

    e)           repay,
repurchase or offer to repay, repurchase or otherwise acquire any
Indebtedness, other than the
Debentures if on a pro-rata basis;

     

    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

    
      
         

      

      
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    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 (x) 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);

     

    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 $150,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

     

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

     

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

     

    ix.        if
the Company fails (after written demand from the Holder) to provide at all times
the Registration Statement or usable prospectus that permits the Company to
issue the Conversion Shares or which allows the Holder to sell the Conversion
Shares pursuant thereto, subject to a grace period of 20 calendar days in the
aggregate in any 365-day period;

    
      
         

      

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

    

     

    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 $150,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.

    

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

    

    Section
9.             Miscellaneous.

    

    a)           Notices.  Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder, including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other facsimile number or address as the Company may
specify for such purpose by notice to the Holder delivered in accordance with
this Section 9(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, at the principal place of business of the
Holder.  Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified on the signature page prior to 5:30 p.m. (New York
City time), (ii) the date immediately following the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified on the signature page between 5:30 p.m. (New York City time) and 11:59
p.m. (New York City time) on any date, (iii) the second Business Day following
the date of mailing, if sent by nationally recognized overnight courier service
or (iv) upon actual receipt by the party to whom such notice is required to be
given.

    
      
         

      

      
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    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,
Arbitration.  All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with, and any dispute
between the parties relating to or arising from the Transaction Documents shall
be governed by, the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof.  Each party agrees that
all legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Debenture and any other Transaction
Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents), as well as any dispute
between the parties relating to the Transaction Documents, shall be resolved by
binding arbitration in San Francisco, California before an arbitrator with
experience in commercial disputes relating to securities.  The
arbitration shall be administered by JAMS pursuant to its Comprehensive
Arbitration Rules and Procedures, or, if for any reason JAMS refuses to
administer such arbitration or JAMS is no longer in business, by the American
Arbitration Association (“AAA”) in accordance
with its rules and procedures. Unless the arbitrator determines that there is
exceptional need for additional discovery, discovery in the arbitration shall be
limited as follows:  (1) the parties
shall exchange non-privileged relevant documents including, without
limitation, all documents that the parties intend to use as evidence in the
arbitration; and (2) each party shall be entitled to take one
deposition of seven hours duration of either an opposing party or a
non-party.  If one party fails to respond within 20 days after the
other party mails a written list of proposed arbitrators to that party by either
agreeing to one of the proposed arbitrators or suggesting 3 or more alternate
arbitrators, the proposing party may select the arbitrator from among its
initial list of proposed arbitrators and JAMS (or AAA if it is administering the
arbitration) shall then appoint that arbitrator to preside over the arbitration.
 If the parties are unable to agree on an arbitrator, the parties shall
select an arbitrator pursuant to the rules of JAMS (or AAA if it is
administering the arbitration). Where reasonable, the arbitrator shall schedule
the arbitration hearing within four (4) months after being
appointed.  The arbitrator must render a decision in writing,
explaining the legal and factual basis for decision as to each of the principal
controverted issues.  The arbitrator’s decision will be final and binding
upon the parties.  A judgment upon any award may be entered in any court of
competent jurisdiction.  This clause shall not preclude the parties
from seeking provisional remedies in aid of arbitration, such as injunctive
relief, from any court of competent jurisdiction. Each party shall be
responsible for advancing one-half of the costs of arbitration, including all
JAMS (or AAA) fees; provided that, in the award, the prevailing party shall be
entitled to recover all of its costs and expenses, including reasonable
attorneys’ fees and costs, arbitrator fees, JAMS (or AAA) fees and costs, and
any attorneys’ fees and costs incurred in compelling arbitration.  The
parties are not waiving, and expressly reserve, any rights they may have under
federal securities laws, rules, and regulations, and any such rights shall be
determined in the arbitration provided for herein.  Each party hereby
irrevocably agrees and submits to the jurisdiction of the federal and state
courts located in the City of San Francisco, California, for any suit, action or
proceeding enforcing this arbitration provision or entering judgment upon any
arbitral award made pursuant to this arbitration provision, and each party
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 courts, or that such suit, action or proceeding is an inconvenient
venue.  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 law.  This
provision will be interpreted, construed and governed according to the Federal
Arbitration Act (9 U.S.C. Sections 1 et seq.).

    
      
         

      

      
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    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.  Any waiver by the Company or the Holder must be in
writing.

    

    f)           Severability.  If
any provision of this Debenture is invalid, illegal or unenforceable, the
balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless remain
applicable to all other Persons and circumstances.  If it shall be
found that any interest or other amount deemed interest due hereunder violates
the applicable law governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum rate of interest
permitted under applicable law. The Company covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law or other law which would prohibit or forgive the Company from
paying all or any portion of the principal of or interest on this Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this indenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or 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.

    
      
         

      

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

    

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

    

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

    

    

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

     

     

    (Signature
Pages Follow)

    
      
         

      

      
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    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.

    

    

    
      	 
      	 
      	
              HYPERDYNAMICS
      CORPORATION

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              By:

            	 
      
	 
      	 
      	
              Name:

            
	 
      	 
      	
              Title:

            
	 
      	 
      	
              Facsimile
      No. for delivery of Notices:
_______________

            

    

    

      
        
           

        

        
          28

          
            

          

        

        
           

        

      

    

     

    ANNEX
A

    

    NOTICE
OF CONVERSION

    

    

    The
undersigned hereby elects to convert principal under the 10% Convertible
Debenture due September ___, 2012 of Hyperdynamics Corporation, a Delaware
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: __________

            

    

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    Schedule
1

    

    CONVERSION
SCHEDULE

    

    The 10%
Convertible Debentures due on September ___, 2012 in the aggregate principal
amount of $____________ are issued by Hyperdynamics Corporation, a Delaware
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

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      

    

     

     

    30

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