Document:

Lithium Exploration Group, Inc.: Exhibit 10.1 - Filed by newsfilecorp.com

	November 18, 2011 
	  
	Mark Siegel 
	CEO 
	Glottech-USA 
	898 Fern Hill Rd 
	West Chester, PA 
	19380 

LETTER AGREEMENT

Dear Mark:

          This
letter agreement, inclusive of the attachments hereto (collectively, the
"Agreement"), sets forth the terms of our contemplated relationship pursuant to
which Lithium Exploration Group, Inc. ("LEXG") will acquire from Glottech-USA,
LLC ("Glottech-USA") one initial unit of our proprietary and patented mechanical
ultrasound technology (the "Technology") for use in water purification,
inclusive of its process of separating from produced water, as the primary fluid
stock, the salt and other minerals and by-products contained therein
("By-Products"), for LEXG's commercial sale, use and/or re-use of such
By-Products in LEXG's normal course of business. All attachments hereto (a
listing of which is set forth on the signature page hereof) shall be deemed a
material component of this Agreement, and the terms of all such attachments
shall be deemed set forth herein "in haec verba" and considered a part
hereof. Notwithstanding the terms of all attachments to this Agreement, the
additional terms of our relationship shall be as follows:

I.    
   Deliverables

          Glottech-USA
will assemble and ship to LEXG one (1) unit of our Technology specifically
designed for water purification (the process of which includes, among other
things, the separation and extraction of salt, minerals and other-products which
are either burned off or available as a brine slurry) intended to optimize
LEXG's mineral separation efforts consistent with LEXG's intended application
and use. The Technology will be shipped to LEXG, F.O.B. Glottech-USA's
designated loading dock in the Philadelphia, PA area, to the specific location
in Alberta to be designated by LEXG. Glottech-USA, LLC is entitled to retain the
initial unit for a period of one hundred twenty (120) days upon it being
operational for testing purposes.

II.        Title,
Ownership and Licensing of the Technology

          Title
to and ownership of the Technology and units will at all times be retained
solely by Glottech-USA and/or GD Glottech-International Limited
(“Glottech-International”), as applicable. Glottech-USA will license the use of
the Technology, for the purposes set forth herein, to LEXG for its unlimited use
of the Technology, subject to the terms of this Agreement and payment of the
"Technology Licensing & Lease Payment" and the "Royalties", as such terms
are more specifically set forth and defined in Paragraphs VI and VII,
respectively, herein below.

III.        Territorial
Licensing/Limited Exclusivity

          
 A. Subject to Paragraph III.B, the territorial map attached hereto as
Exhibit A sets forth the designated territory in Alberta, including the specific
townships in and around the "Swan Hills Region" of Alberta, as the territory
designated by LEXG for which it is to be granted exclusivity for its intended
application and use of the Technology. This limited exclusivity
shall last for the Term of this Agreement (as such term is more specifically set
forth and defined in Paragraph XIV herein below).

* Certain disclosure has been redacted from this copy of the
Letter Agreement on Page 4 and Page 5 pursuant to a request for confidential
treatment. The material has been filed seperately with the U.S. Securities and
Exchange Commission.

        
   B. For the Term of this Agreement (as defined below in
Paragraph XIV), Glottech-USA and Glottech-International agree that it will
neither license, sublicense nor lease the Technology to any third party for use
in the country of Canada, for use in any application involving produced water
without first obtaining satisfactory representation from such third parties that
they have not and do not intend to hold or apply to any province in Canada for a
permit, lease, license. sublicense or other similar instrument required for the
commercialization of minerals (other than petroleum, natural gas, oil sands and
coal) and precious metals including, but not limited to, gold, silver, copper,
iron, granite, limestone, lithium, potassium, calcium, magnesium or any other
mineral or precious metal. Furthermore, such third party must agree to cause its
affiliates to abide by the same restrictions set forth above. LEXG and/or its
subsidiary company, 1617437 Alberta Ltd., shall be granted non-exclusive
distribution rights to the Technology and Units in Canada subject to payments of
the Royalties described in Paragraph VII. The payments payable to the LEXG
subsidiary described therein shall be intended to facilitate the distribution of
additional Units in Canada for use by parties other than LEXG. 

           
 C. The terms of Paragraphs III (A) and (B) here in above notwithstanding,
however, it is acknowledged and understood by the Parties hereto as further
clarification, that such limited exclusivity is specifically limited to LEXG's
stated application and use of the Technology. Nothing herein shall be construed
as restricting Glottech-USA or Glottech-International from licensing.
sublicensing and leasing the Technology to any third parites outside of the
geographic area designation in Paragraph III (A) or Paragraph III (B), if
applicable, herein above so long as such usage of the Technology involving
produced water is not licensed, sublicensed or leased to third parties that hold
or intend to apply to any province in Canada for any permits, leases, licenses
or sublicenses or other similar instrument required for the commercialization of
minerals (other than petroleum, natural gas, oil sands and coal) and precious
metals including, but not limited to, gold, silver, copper, iron, granite,
limestone, lithium, potassium, calcium, magnesium or any other mineral or
precious metal or to not otherwise agree to the percentage royalty payments to
which LEXG would be entitled to subject to the terms of Paragraph VII (A)
below.

           
 D. The terms of this Paragraph III are conditioned upon LEXG's remaining a
commercially viable company actively involved in exploration, mining, and
producing minerals.

IV.        Assignment/Use
of the Technology

      
     The Technology is being licensed for use solely by
LEXG and may not be assigned by LEXG to any third party without the specific
written consent of Glottech-USA. Use of the Technology is limited to the
purposes set forth in this Agreement and is intended solely for use with
produced water as the primary fluid stock.

V.       
Responsibilities of Glottech-USA and LEXG

        
  For purposes of this Agreement:

          (i)
Glottech-USA's primary responsibilities will be to: (a) assemble one (l) fourth
generation Technology unit for shipment to LEXG, (b) assist LEXG in the proper
setup, operations and training of the Technology unit, (c) monitor the
geographic location of the Technology, (d) monitor the ongoing flow of fluid
stock through the Technology unit using Glottech-USA supplied fluid flow
metering technology supplied with the Technology, (e) provide to LEXG a monthly
reporting of such flow monitoring, (f) provide LEXG with the billing data based
upon such flow monitoring, (g) provide LEXG with technical guidance on a reasonable, "as needed", basis as to the proper
use of the Technology, (h) recommend reasonable maintenance and component
replacement procedures based on component manufacturers' and/or Glottech-USA's
guidelines and actual "wear and tear" usage data, (i) take all other actions as
are reasonable and customary to cooperate with LEXG in an attempt to insure that
LEXG's intended use of the Technology is successful for its intended purposes,
and (j) ensure that LEXG has a minimum of 5 Technology units available for its
use per year; 

           
(ii) LEXG's primary responsibilities will be to: (a) identify for its own
purposes the geographic location(s) for deploying the Technology (if in addition
to the geographic location specified in Paragraph III herein above) which it
believes provide the most suitable opportunity to realize the benefits of the
Technology for its intended purposes, (b) to market and/or use the extracted
salt, minerals and other by-products derived from the use of the Technology for
its intended purposes, (c) oversee the day-today operations of the Technology,
(d) take all actions reasonable and necessary to insure that all safety,
environmental, and legal rules and regulations governing the use of the
Technology in the geographic areas of use are researched, established, deployed
and adhered to, (e) obtain and maintain all governmental licenses and permits
legally required for operation of the Technology, (e) obtain and maintain all
governmental and environmental licenses and permits legally required for
commercialization and/or disposal of the salt, minerals and other by-products
resulting from the use of the Techno logy, (f) obtain and maintain reasonable
but adequate insurance covering all liabilities and damages which may result
either directly or indirectly to the Technology or directly or indirectly to any
property or person as a result of operation of the Technology, such insurance to
specifically name Glottech-USA, LLC and LEXG, their directors, officers,
managers, employees, agents, subcontractors, and properties and assets of same,
as is normal and customary in the operation and use of such technology; (g)
review all accounting, operational, and Royalties-related billing data provided
by Glottech-USA and timely notify Glottech-USA of any discrepancies therein
necessary to insure that all such information is correct, to LEXG's best
knowledge, (h) timely pay all vendors, as applicable, for costs and expenses
associated with the cost of operating the Technology and with the use and/or
disposal of all salt, minerals, and other by-products resulting from the use
thereof, (i) take all steps reasonably necessary to insure that recommended
maintenance and component replacement procedures based on Glottech USA's guide
lines including, but not necessarily limited to, actual "wear and tear" usage
data, are promptly adhered to, and (j) take all other actions as are reasonable
and customary to cooperate with Glottech-USA to insure a successful business
relationship between the Parties.

VI.        Technology
Licensing & Lease Payment

         
  LEXG and Glottech-USA hereby acknowledge and agree that LEXG has
already made the following payments:

      
     A. $25,000 on March 21, 2011 in consideration for
entering into the letter agreement dated March 17, 2011 ("March 17
Agreement");

        
   B. $75,000 on May 27, 2011 in consideration for continuance of
the March 17 Agreement; and

        
   C. $700,000 on May 27, 2011 in consideration for a licensing
and technology payment (the "Technology Licensing & Lease Payment").

 * Certain disclosure has been redacted from this copy of
the Letter Agreement on Page 4 and Page 5 pursuant to a request for confidential
treatment. The material has been filed seperately with the U.S. Securities and
Exchange Commission.

VII.       
Royalties

         
   A. Commencing as of the end of an initial sixty (60) day
testing and training period following satisfactory delivery and physical setup
of the Technology, and continuing thereafter for as long as this agreement is in
effect (or any successor agreement), LEXG shall pay to Glottech-USA continuing
monthly royalties (the "Royalties") in the following amount per physical ton of
water processed pursuant to the usage of the Technology, such processed amounts
of water being measured and recorded using the flow metering technology provided
for such purposes by Glottech-USA. Glottech-USA will invoice LEXG for each
month's Royalties based upon the metered production of the previous month ended,
and will provide accounting for such invoiced Royalties in order that LEXG may
verify the accuracy thereof. Such invoiced Royalties shall be due and payable to
Glottech-USA within fifteen (15) calendar days from receipt of invoice. In the
event of dispute, LEXG shall nonetheless pay the invoiced amount, notifying
Glottech-USA of the disputed amount and providing reasonable accounting to
support the disputed amount. If Glottech-USA and LEXG are unable to agree upon a
mutually acceptable resolution as to the disputed amount, such dispute will be
submitted to the American Arbitration Association for final resolution (unless
Glottech-USA and LEXG shall mutually agree to an alternate means of arbitration
or resolution which, in any event, must be submitted in a timely manner).

                
 LEXG shall pay to Glottech-USA royalties of the following amount per
physical ton of water produced:

	 	(i) 	
      $* royalty payable by LEXG to Glottech-USA for Units
      licensed for its own applications/projects in
Canada.

         
  LEXG and Glottech-USA also agree to the following schedule of
distribution rights and fees paid to LEXG's subsidiary company 1617437 Alberta
Ltd. by Glottech-USA for the distribution of Units licensed for use in Canada
that are not licensed directly by LEXG for its own applications/projects (all
royalties are outlined as a per physical ton of water processed pursuant to the
usage of the Technology). These distribution rights do not pertain to units that
already are part of LEXG's existing Territorial Licensing/Limited
Exclusivity:

	 	(ii) 	
      $* for all contracts initiated outside of Canada by
      Glottech-USA for units that will be processing water in Canada,

	 	 	 	 
	 	(iii) 	
      $* for all contracts initiated inside of Canada,
      initiated by other Glottech-USA distributors for units that will be
      processing water in Canada,

	 	 	 	 
	 	(iv) 	
      The following payment schedule is for units that are
      initiated by LEXG or 1617437 Alberta Ltd. for units that will be active In
      Canada:

	 	 	 	 
	 		A. 	
      $* for the first $*, 25% of the Royalties for amounts
      from $* to $*; and 50% of Royalties in excess of $*.

	 	 	 	 
	 		
      EXAMPLE - $* Royalty = $* ($*), $* ($*), and $* ($*).
      Therefore on a $* Royalty payment to Glottech-USA, 1617437 Alberta Ltd.
      would receive a $* distribution fee.

       
     B. As consideration for determining a reasonable
expectation of Royalties which Glottech-USA may expect pursuant to the
relationship contemplated in this Agreement, LEXG's annual production for each
individual unit of Technology shall generate, within a ten percent (10%) plus or
minus deviation, Royalties of $* on an annualized 12 month basis (the "Minimum
Annualized Royalties"), computed according to the following formula: 20 hours/day x 22
days/month x 12 months/year x 15 tons of produced water/hour x $*/ton. In order
to allow LEXG a reasonable period of time for ramp-up, the Minimum Annualized
Royalties calculation shall not be considered until the end of 180 days
following delivery and setup of the Technology. The Minimum Annualized
Royalties, applicable for each individual unit of Technology, shall be a primary
consideration in any determination by Glottech-USA to consider an extension of
the initial Term of this Agreement, or any extension or subsequent extension of
the Term as provided for in Paragraph XIV.

 * Certain disclosure has been redacted from this copy of
the Letter Agreement on Page 4 and Page 5 pursuant to a request for confidential
treatment. The material has been filed seperately with the U.S. Securities and
Exchange Commission.

          
 C. The amount of the Royalties set forth in Paragraph VII herein are
exclusive to LEXG and are being provided at a discounted rate to LEXG due to the
innovative nature of LEXG's application of the technology and the agreed upon
deal between the Parties. In the event that LEXG discloses to a third party
(other than directors, officers, employees or investors of LEXG on a need to
know basis, which are deemed to be authorized recipients of such information)
the price of the Royalty being paid hereunder, without the consent of
Glottech-USA, such consent not to be unreasonably withheld, the following shall
occur: (i) the Royalties-based pricing set forth above of $*/ton shall be
increased to $*/ton; or (ii) LEXG shall return any such licensed Technology
units to Glottech-USA at LEXG's sale expense. Notwithstanding anything to the
contrary contained in this Paragraph VII (C), LEXG shall be permitted to
disclose the price of the Royalty being paid hereunder by LEXG in the following
circumstances: (i) such information enters the public domain (through no default
of LEXG); or (ii) such information is required to be disclosed pursuant to
applicable laws (including, without limitation, applicable securities laws).

VIII.        Issuance of
LEXG Common Stock to Glottech-USA

         
    Glottech-USA, LLC is hereby granted an option to acquire
2,000,000 shares of LEXG's restricted shares of common stock, exercisable at the
sole discretion of Glottech-USA, LLC within twelve (12) months from the date of
physical delivery of one unit of the Technology, F.O.B. Glottech-USA, LLC's
loading dock in the Philadelphia, PA area, such delivery location to be more
specifically provided to LEXG. This option is hereby granted as additional
consideration for Glottech-USA deliverables. 

          
  The total price of such option shall be $1.00 and shall be
exercisable at Glottech-USA, LLC's sole discretion by written notice of such
exercise by Glottech-USA, LLC to LEXG. Notwithstanding the preceding, however,
it is acknowledged that the option hereby granted to Glottech-USA, LLC pertains
to shares of LEXG common stock which have been duly issued to, and escrowed by,
Alex Walsh, personally, and Alex Walsh hereby agrees to provide irrevocable
instructions to the escrow agent to issue all such shares to Glottech-USA, LLC,
or its designees, as shall be specifically set forth in writing by Glottech-USA,
LLC concurrent with such notice by Glottech-USA, LLC to exercise such option.
Alex Walsh has provided Glottech-USA, LLC with a copy of such written
disbursement instructions. Alex Walsh represents and acknowledges that such
option hereby granted has been duly disclosed to LEXG and that LEXG approves
such option, without reservation. If required by law, securities regulation,
terms of LEXG's operating agreement, or otherwise, LEXG further represents and
agrees that it will properly make any and all such filings as required to
legally disclose the option hereby granted to Glottech-USA, LLC. Glottech-USA
represents, acknowledges and agrees that any resale of the optioned shares will
be subject to resale restrictions contained in applicable securities rules and
regulations, none of the optioned shares have been registered under the United
States Securities Act of 1933 or the securities laws of any state of the United
States, and as a result none of the optioned shares may be offered or sold in
the United States unless registered in accordance with federal securities laws
and all applicable state securities laws or if exemptions from such registration
requirements are available.

* Certain disclosure has been redacted from this copy of the
Letter Agreement on Page 4 and Page 5 pursuant to a request for confidential
treatment. The material has been filed seperately with the U.S. Securities and
Exchange Commission.

         
   LEXG represents and agrees that, in the event Alex Walsh fails
to transfer all such shares of LEXG common stock to Glottech-USA, LLC within
thirty (30) days of receipt of Glottech-USA, LLC's notice to exercise such
option, LEXG shall forthwith honor Glottech-USA, LLC's option to exercise by
transferring directly from LEXG the 2,000,000 shares upon the terms set forth in
this Paragraph X, and any legal costs and expenses incurred by Glottech-USA, LLC
in obtaining the 2,000,000 shares pursuant to such option will be fully
reimbursed to Glottech-USA, LLC by LEXG.

          
  Except as otherwise provided herein, LEXG agrees to indemnify and
save GD Glottech-International Limited and Glottech-USA, LLC harmless, to the
fullest extent permitted by law, as the same exists on the date hereof or may
hereafter be amended from and against any and all costs, charges, expenses,
fees, losses, damages or liabilities (including legal or other professional
fees), without limitation, which GD Glottech-International Limited and
Glottech-USA, LLC may suffer, sustain, incur or be required to pay and which
arise out of or in respect of any claim which may be brought, commenced, made,
prosecuted or threatened against GD Glottech-International Limited and
Glottech-USA, LLC, in regards to the issuance or transfer of the shares provided
for in this Paragraph VIII, and any and all costs, charges, expenses, fees,
losses, damages or liabilities which GD Glottech-International Limited and
Glottech-USA, LLC may suffer, sustain or reasonably incur or be required to pay
or any amount paid to settle any such claim or satisfy any judgment, fine or
penalty, if GD Glottech-International Limited and Glottech-USA, LLC acted
honestly and in good faith.

IX.        Expenses and
Applicable Taxes

          
  Unless otherwise specified in this Agreement or otherwise agreed to
in writing by the Parties: (a) all expenses relating to the licensed use and
ongoing maintenance of the Technology will be the sole responsibility of LEXG,
and (b) all taxes of any kind, regardless of the nature thereof, relating to the
physical possession, control and/or use of the Technology will be the sole
responsibility of LEXG. The failure of LEXG to pay any such taxes shall be
deemed a default under this Agreement unless LEXG shall otherwise have cured
such default within a time legally allowed under the laws applicable to the
geographic territory in which either the Technology is physically located or, as
the case may be, applicable to the corporate location of LEXG. In the event of
default not otherwise satisfactorily cured, Glottech-USA shall have the right,
but not the obligation, to pay such taxes, at the occurrence of which LEXG
agrees to cooperate with Glottech-USA in entering the premises where the
Technology is physically located so that Glottech-USA may, at its option, take
possession of the Technology for shipment to a designation of its choosing.
Accordingly, Glottech-USA shall invoice LEXG for, and LEXG shall pay
Glottech-USA for, any and all costs associated with its repossession of the
Technology and delivery thereof to an alternate location of Glottech-USA's
choosing.

X.        Salt,
Minerals, and By-Products - Responsibility and Liability Therefor

         
   LEXG shall bear the sole responsibility and liability for all
salt, minerals and other by-products derived from the use of the Technology,
without regard to the nature of any cost, claim, use, damage or claims for
damages by any party, whether direct or indirect, and LEXG hereby fully and
unconditionally indemnifies Glottech-USA, its directors, officers, agents,
contractors and subcontractors from any and all such responsibility, claims,
and/or damages. Such indemnification by LEXG shall be without expiration or
limitation, it being clearly acknowledged and agreed to by LEXG that
Glottech-USA is deemed solely as a service provider to LEXG pursuant to this
Agreement and further, that Glottech-USA shall have no claim to nor liability
for LEXG's operations of the Technology nor any salt, minerals, or other
by-products which may be extracted from produced water pursuant to LEXG's
operations involving its use of the Technology.

 * Certain disclosure has been redacted from this copy of
the Letter Agreement on Page 4 and Page 5 pursuant to a request for confidential
treatment. The material has been filed seperately with the U.S. Securities and
Exchange Commission.

XI.         Relationship
with Governmental Entities

        
    Terms governing the possession or use of the Technology
required by any governmental entities in any geographic territory in which LEXG
shall have physical possession, control or use of the Technology will be
promptly disclosed, in writing, to Glottech-USA will be updated as to any
material change in such terms as such may occur, from time to time.

XII.        Press Release
Disclosure

            
The Parties acknowledge that LEXG and/ or Glottech-USA may issue press releases
containing such information as is required by law and applicable
regulations.

XIII.     Applicable Law

       
    Unless otherwise required by the laws applicable to the
specific geographic area designated in Paragraph III herein above, this
Agreement shall be governed by the laws of the State of Mississippi, United
States of America.

XIV.     Term of Agreement

           
 The term of this Agreement shall be for an initial period of five (5)
years, automatically renewable thereafter for successive five (5) year periods
of time so long as LEXG, directly or indirectly through third party purchasers,
has licensed five (5) Technology units from Glottech-USA per year; provided,
however, that (i) LEXG's production upon which the Royalties are based shall be
no less than the Minimum Annualized Royalties set forth in Paragraph VII (B)
herein above; and (ii) in the event the first Technology unit is not ready for
delivery by Glottech USA to LEXG at the place of delivery specified by LEXG by
May 31, 2011, LEXG shall not be required to license five (5) Technology units
from Glottech-USA for the first year of this Agreement.

XV.       Definitive
Agreements

         
  A. The parties agree to proceed diligently and in good faith to
negotiate and execute a more fulsome legal agreement, incorporating the terms
and conditions of this Agreement and such other terms, representations,
warranties, covenants, indemnities, conditions and assignment restrictions as
are consistent herewith and are usual and customary in the type of transaction
contemplated by this Agreement or are otherwise agreed to by the parties in
their respective sole discretion.

       
    B. Upon the delivery of the first Technology unit to
LEXG by Glottech-USA, the parties hereto agree that they will enter into a
technology licensing and lease agreement on terms mutually satisfactory to both
parties, acting reasonably ("Technology Licensing & Lease Agreement").

          
 C. The parties agree to proceed diligently and in good faith to negotiate
and enter into a more formal form of distribution agreement incorporating the
terms and conditions in this Agreement and specifically, those contained in
paragraph III.B.

XVI.      Priority of Terms
and Conditions to be Governed by the Technology Licensing & Lease
Agreement.

          
  Notwithstanding the terms and conditions of this Agreement, it is
hereby acknowledged and agreed to that the terms and conditions of the
Technology Licensing & Lease Agreement shall have priority over and govern any provisions of this Agreement which
may be in conflict with the aforementioned agreement as to any interpretation or
application, and no such conflict arising between this Agreement and the
Technology Licensing & Lease Agreement shall be subject to arbitration or
determination by any court to whom such conflict(s) may be submitted. 

 * Certain disclosure has been redacted from this copy of
the Letter Agreement on Page 4 and Page 5 pursuant to a request for confidential
treatment. The material has been filed seperately with the U.S. Securities and
Exchange Commission.

XVII.      Time of the
Essence: Mutual Cooperation

        
     Time is of the essence in consummating the
relationship contemplated herein. Accordingly, the Parties hereby each agree to
cooperate fully and on a timely basis in an attempt to consummate the
transaction herein contemplated.

XVIII.    Assumption by
Glottech-International

        
     In the event Glottech-USA is unable to perform its
obligations under this Agreement or it no longer has the rights it represents as
having under this Agreement, GD Glottech-International hereby agrees that it
will be bound by the terms of this Agreement in the place and stead of
Glottech-USA as if it were originally the party to this Agreement.

XIX.      Confidentiality

        
    The parties agree that this Agreement and the identity
of the parties shall be kept and maintained as strictly confidential, and shall
not, except as may be required by law, disclose the same to any other person
without the prior written consent, such consent not to be unreasonably withheld,
of the other party. This paragraph is in addition to the Confidentiality,
Non-Disclosure & Non-Circumvention Agreement.

XX.      Entire
Agreement

Except for the Confidentiality, Non-Disclosure &
Non-Circumvention Agreement, this Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations and discussions, whether written
or oral.

         
  Please confirm your agreement to the foregoing by executing and
returning the duplicate copy of this letter to the undersigned. Execution may be
by counterpart and facsimile.

Very truly yours,

LITHIUM EXPLORATION GROUP, INC.

	/s/ Alex Walsh 	 
	Alex Walsh 	 
	President & Chief Executive Officer 	 

THE TERMS OF THIS AGREEMENT, INCLUDING ALL ATTACHMENTS
DESIGNATED A PART HEREOF, ARE HEREBY ACKNOWLEDGED AND AGREED TO, THIS 8TH DAY OF
NOVEMBER, 2011

GLOTTECH-USA, LLC

_________________________

 * Certain disclosure has been redacted from this copy of
the Letter Agreement on Page 4 and Page 5 pursuant to a request for confidential
treatment. The material has been filed seperately with the U.S. Securities and
Exchange Commission.

	/s/ Mark D. Siegel
    	 
	Mark D. Siegel 	 
	Chief Executive Officer 	 

GD Glottech-International Limited

	/s/ Peter Dizer
	 
	Peter Dizer 	 

[see listing of Attachments. next page]

* Certain disclosure has been redacted from this copy of the
Letter Agreement on Page 4 and Page 5 pursuant to a request for confidential
treatment. The material has been filed seperately with the U.S. Securities and
Exchange Commission.

Attachments
 

 * Certain disclosure has been redacted from this copy of
the Letter Agreement on Page 4 and Page 5 pursuant to a request for confidential
treatment. The material has been filed seperately with the U.S. Securities and
Exchange Commission.Mabcure Inc.: Exhibit 10.1 - Filed by newsfilecorp.com

     Exhibit 10.1 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO COUNSEL TO THE BORROWER THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. 

Original Issue Date: October 20, 2011 

8% SENIOR SECURED CONVERTIBLE DEBENTURE

  DUE OCTOBER 20, 2012

          FOR
VALUE RECEIVED, Mabcure Inc., a Nevada corporation (hereinafter called
the "Borrower" or “Company”), hereby promises to pay to the order
of Biotech Investment Corp., a Nevada Company (the "Holder"
or the “Investor”) the sum of One Hundred Thousand U.S. Dollars
(U.S. $100,000.00), on October 20, 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 Convertible Debenture (including all
Convertible Debentures issued in exchange, transfer or replacement hereof, this
"Debenture") is issued on the Closing Date (collectively, the
"Debentures").

          Except
as otherwise expressly provided herein, including but not limited to Section
7(c) below, this Debenture may not be prepaid by the Borrower. All payments due
hereunder (to the extent not converted into Common Stock, par value
$0.001 per share, of the Borrower (the "Common Stock") in
accordance with the terms hereof) shall be made in lawful money of the United
States of America provided that, to the extent that any accrued Interest has not
been paid when due, at the option of the Holder, in whole or in part, such
accrued and unpaid Interest may, upon written notice to the Borrower, be added
to the principal amount of this Debenture, in which event Interest shall accrue
thereon in accordance with the terms of this Debenture and such additional
principal amount shall be convertible into Common Stock in accordance with the
terms of this Debenture. All payments shall be made at the address of the Holder
at such address as the Holder shall hereafter give to the Borrower by written
notice made in accordance with the provisions of this Debenture. Whenever any
amount expressed to be due by the terms of this Debenture is due on any day
which is not a Business Day (as defined below), the same shall instead be due on
the next succeeding day which is a Business Day.

          This
Debenture is subject to the following additional provisions: 

1 

          Section
1.      Certain
Definitions. For the purposes hereof, the following terms shall
have the following meanings: 

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

          “1934
Act” means the Securities Exchange Act of 1934, as amended. 

          ““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 ninety (90) 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 ninety (90) 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.

          “Bloomberg”
shall mean Bloomberg L.P. 

          "Business
Day" shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in the City of New York, New York are authorized or required by
law or executive order to remain closed.

          
“Closing Date” means the Trading Day when (i) all of the Holder’s
Transaction Documents have been executed and delivered by the applicable parties
thereto, (ii) all conditions precedent to (a) each Holder’s obligations to pay
the Subscription Amount and (b) the Company’s obligations to deliver the
Debentures have been satisfied or waived, (iii) Holder shall have delivered the
purchase price for the Debenture to the Company in accordance with this
Debenture and (iv) all of the Debenture Closing Conditions have been met. 

          "Closing
Price," as of any date, means the last sale price of the Common Stock on the
Principal Market as reported by Bloomberg or, if the Principal Market is not the
principal trading market for such security, the last sale price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if no last sale price of such
security is available on a securities exchange or trading market where such security is listed or
traded as reported by Bloomberg or in any of the foregoing manners, the average
of the bid prices of any market makers for such security that are listed in the
"pink sheets" by the National Quotation Bureau, Inc. If the Closing Price cannot
be calculated for such security on such date in the manner provided above, the
Closing Price shall be the fair market value as mutually determined by the
Company and the Holder. 

2 

          “Commission”
means the Securities and Exchange Commission. 

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

          "Conversion
Amount" shall have the meaning set forth in Section 3(a)(iv) below. 

          “Conversion
Market Price” shall mean the average of the three (3) lowest VWAPs over the
fifteen (15) consecutive Trading Day period immediately preceding the date in
question. 

          "Convertible
Securities" means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for Common Stock.

          "Debentures"
shall be deemed to refer to this Debenture, as originally executed, or if later
amended or supplemented, then as so amended or supplemented, and all convertible
debentures issued in replacement hereof or thereof or otherwise with respect
hereto or thereto.

          “Default
Conversion Sum” shall have the meaning set forth in Section 11(a) below.

          “Event
of Default” shall have the meaning set forth in Section 10. 

          “Event
of Failure” shall mean the occurrence of any event(s) which trigger the
accrual of Liquidated Damages. 

          “Holders”
shall have the meaning set forth in the first paragraph of this Debenture. 

          "Indebtedness"
shall mean $100,000 plus accrued interest;

          “Interest”
shall heave the meaning set forth in Section 2 below. 

          “Interest
Payment Shares” shall have the meaning set forth in Section 2 below.

3 

          “Investor”
shall have the meaning set forth in the first paragraph of this Debenture. 

          “Issuable
Shares” shall heave the meaning set forth in Section 3(a)(iii) below.

          “Late
Payment Fees” shall have the meaning set forth in Section 13 below.

          “Late
Share Delivery Liquidated Damages” shall have the meaning set forth in
Section 3(d)(iv) below. 

          
“Liquidated Damages” means any liquidated damages due hereunder, or under
the other Transaction Documents, including but not limited to the Late Share
Delivery Liquidated Damages and the Late Payment Fees. 

          "Market
Price," as of any date, means the Volume Weighted Average Price (as defined
herein) of the Common Stock during the five (5) consecutive Trading Day period
immediately preceding the date in question. 

          “Major
Transaction Redemption Premium” shall mean 125%. 

          “Mandatory
Redemption Premium” shall mean 125%.

          
Options" means any rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities. 

          “Original
Issue Date” shall mean the date of the first issuance of any Debenture
regardless of the number of transfers of any particular Debenture. 

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

          “Redemption”
shall mean any redemption of the Debenture hereunder, including but not limited
to a Redemption Upon Major Transaction, a Mandatory Redemption, and an Automatic
Redemption. 

          “Redemption
Amount” shall mean any amount that is payable to the Holder pursuant to a
Redemption. 

          “Redemption
Date” shall mean the date of any Redemption of the Debenture hereunder. 

          “Required
Cash Payment” shall have the meaning set forth in Section 10(a) below. 

4 

          “Required
Holders” shall mean Holders holding at least seventy five percent (75%) of
the then outstanding principal amount of Debentures. 

          “Shares”
shall mean the shares of Common Stock issuable upon Conversion of the
Debentures.

          “Subsidiaries”
shall mean any subsidiaries of the Company in which the Company has a 50% or
greater equity interest.

          "Trading
Day" shall mean any day on which the Common Sock is traded for any period on
the Principal Market, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded.

          “Transaction
Documents” means this Debenture and all security and security documents
granted in support of this Debenture.

          The
"Volume Weighted Average Price" or “VWAP” for any security as of
any date means the volume weighted average sale price on the Principal Market,
as reported by, or as calculated based upon data reported by, Bloomberg or an
equivalent, reliable reporting service mutually acceptable to and hereafter
designated by holders of a majority in interest of the Debentures and the
Company or, if no volume weighted average sale price is reported for such
security, then the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the closing trade prices of any market makers for such
security that are listed in the "pink sheets" by the National Quotation Bureau,
Inc. If the Volume Weighted Average Price is to be determined over a period of
more than one Trading Day, then “Volume Weighted Average Price” for the
period shall mean the volume weighted average of the daily Volume Weighted
Average Prices, determined as set forth above, for each Business Day during the
period. If the volume weighted average price cannot be calculated for such
security on such date in the manner provided above, the volume weighted average
price shall be the fair market value as mutually determined by the Company and
the holders of a majority in interest of the Debentures being converted for
which the calculation of the volume weighted average price is required in order
to determine the Conversion Price of such Debentures.

          Section
2.      Interest. The Company
shall pay interest (“Interest”) to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture at the rate
of eight percent (8%) per annum (the “Interest Rate”) from the Original
Issue Date (as defined herein) until the same becomes due and payable, whether
at maturity or upon acceleration or otherwise. Interest shall commence accruing
on the Original Issue Date, shall be computed on the basis of a 365-day year and
the actual number of days elapsed (as further described below), in cash or, to
the extent not yet paid, at maturity or upon acceleration in accordance with the
terms hereof. Payments of Interest shall be due and payable on the Maturity Date
(as defined above) (the “Interest Payment Date”). Upon five (5) Trading
Days advance written notice to the Holder, and provided that Interest is paid timely, the Company may pay the
Interest payable on this Debenture at maturity with registered, free-trading
shares of Common Stock (as defined below)(“Interest Payment Shares”) with
an attributed value per share equal to the Conversion Market Price as calculated
on the Interest Payment Date that such Interest is due to be paid hereunder, or
as calculated on the date that such Interest Payment Shares are delivered to the
Holder, whichever is less (the “Interest Conversion Price”).

5 

          Notwithstanding
anything herein to the contrary herein, the Company shall not be entitled to pay
Interest in shares of Common Stock if, and to the extent that, in the sole
determination of the Holder, the issuance of such shares of Common Stock would
cause the Beneficial Ownership Limitation of Section 3(a)(ii) to be exceeded. In
the event the Company provides notice of its intention to pay interest in shares
of Common Stock and because of the Beneficial Ownership Limitation it is unable
to issue such shares of Common Stock to the Holder, the Holder, upon the
Company’s written request, must promptly provide documentation to the Company
demonstrating that the Beneficial Ownership Limitation would be exceeded by
payment of Interest in shares of Common Stock.

          Furthermore,
upon the occurrence of an Event of Default (as defined in Section 10 hereof)
which has remained uncured for ten (10) Trading Days, the Company will pay
interest to the Holder, payable on demand in cash (unless first converted into
Common Stock by the Holder), on the outstanding principal balance of and unpaid
interest on the Debenture from the date of the Event of Default until the
earlier of such Event of Default is cured or repayment in full of the Debenture
at the rate of the lesser of eighteen percent (18%) and the maximum applicable
legal rate per annum.

          Section
3.      Conversion.

                    (a)      Conversion
  Right. 

                                        (i)      Conversion
Timing and Amount. Subject to the limitations on Conversion contained
herein, the record Holder of this Debenture shall have the right (a
“Conversion Right”) from time to time, and at any time on or after the
Original Issue Date hereof to convert any of all of the Debentures (plus any
accrued and unpaid Interest and other Required Cash Payments) into fully paid
and non-assessable shares of Common Stock, or any shares of capital stock or
other securities of the Company into which such Common Stock shall hereafter be
changed or reclassified, at the Conversion Price (as defined in Section 3(b)
below, subject to adjustment as provided herein) determined as provided herein
(a "Conversion"). The Conversion Rights set forth in this Section 3 shall
remain in full force and effect immediately from the Original Issue Date until
the Debenture is paid in full regardless of the occurrence of an Event of
Default. 

6 

                                        (ii)      Limitation On Conversion. Notwithstanding the above, in no event
shall the Holder be entitled to convert any portion of this Debenture in excess
of that portion of this Debenture upon Conversion of which (nor shall the
Company be permitted to pay Interest in shares of Common Stock to the extent
that) the sum of (1) the number of shares of Common Stock beneficially owned by the
Holder and any applicable affiliates (other than shares of Common Stock which
may be deemed beneficially owned through the ownership of the unconverted
portion of the Debenture, or the unexercised or unconverted portion of any other
security of the Company subject to a limitation on Conversion or exercise
analogous to the limitations contained herein)(the “Beneficially Owned
Shares”) and (2) the number of shares of Common Stock issuable upon the
Conversion of the portion of the Debenture with respect to which the
determination of this proviso is being made or upon the payment of Interest in
shares of Common Stock with respect to which the determination of this proviso
is being made, would result in beneficial ownership by the Holder and its
affiliates of more than 9.99% (the “Maximum Percentage”) of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon conversion of this Debenture
held by the Holder (the “Beneficial Ownership Limitation”). For purposes
of the proviso to the immediately preceding sentence, beneficial ownership shall
be determined by the Holder in accordance with Section 13(d) of the Exchange Act
and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of
such proviso in the immediately preceding sentence, and PROVIDED THAT the
Beneficial Ownership Limitation shall be conclusively satisfied if the
applicable Notice of Conversion includes a signed representation by the Holder,
if requested by the Company, that the issuance of the shares in such Notice of
Conversion will not violate the Beneficial Ownership Limitation, and the Company
shall not be entitled to require additional documentation of such
satisfaction.

                                        (iii)     
Maximum Exercise of Rights. In the event the Holder notifies the Company
that the exercise of the rights described in this Section 3, or other shares of
Common Stock issuable to the Holder under the terms of the Transaction Documents
(collectively, “Issuable Shares”) would result in the issuance of an
amount of Common Stock that would exceed the maximum amount that may be issued
to a Holder calculated in the manner described in Section 3(a)(ii) of this
Agreement, then the issuance of such additional shares of Common Stock to such
Holder will be deferred in whole or in part until such time as such Holder is
able to beneficially own such Common Stock without exceeding the maximum amount
calculated in the manner described in Section 3(a)(ii) of this Agreement. The
determination of when such Common Stock may be issued without violating the
Beneficial Ownership Limitations shall be made by each Holder as to only such
Holder. 

                                        (iv)      Calculation
of Conversion Amount. The number of shares of Common Stock to be issued upon
each Conversion of this Debenture shall be determined by dividing the Conversion
Amount (as defined herein) by the applicable Conversion Price. The term
"Conversion Amount" means, with respect to any Conversion of the
Debenture, the sum of (1) the principal amount of the Debenture to be converted
in such Conversion, PLUS (2) all accrued and unpaid Interest thereon for the
period beginning on the Original Issue Date and ending on the Conversion Date
(as defined in Section 3(d) hereof), PLUS (3) at the Holder's option, any other
Required Cash Payment owed to the Holder.

7 

                    (b)    Conversion Price. The "Conversion Price" shall equal $0.10 subject to Section 6 and other adjustments to a lower price pursuant to the terms of this Debenture and subject to equitable
adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any Subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions
and similar events.

                    (c) Reservation of Shares.

                                        (i)  Increase and Maintenance of Authorized and Reserved Amount. The Company represents that the aggregate number of its authorized shares of Common Stock is at least 1,500,000,000 shares and
covenants that it will initially reserve (the “Initial Share Reservation”) from its authorized and unissued Common Stock a number of shares of Common Stock equal to at least 150% of the initial principal amount of this
Debenture, divided by the Conversion Price in effect on the Original Issue Date of this Debenture, free from preemptive rights, to provide for the issuance of Common Stock upon the Conversion of this Debenture.  Company further covenants that,
beginning on the Original Issue Date hereof, and continuing until all of the Debentures have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company will reserve from its authorized and unissued Common Stock a
sufficient number of shares (the “Required Debenture Reserve Amount”), free from preemptive rights, equal to 150% of the number of shares as shall from time to time be necessary to provide for the issuance of Common Stock upon the
full Conversion of all of the Debentures (without regard to any limitations on conversions). The Company shall authorize and reserve such additional amounts (together with the Required Debenture Reserve Amount, collectively referred to as the
“Required Reserve Amount”) of shares from time to time as necessary to issue all common shares required under this Debenture.. The Company represents that upon issuance, such Shares will be duly and validly issued, fully paid and
non-assessable. In addition, if the Company shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Debenture shall be convertible at the then applicable
Conversion Price, or if the Conversion Price shall be adjusted, the Company shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive
rights, for Conversion of the outstanding portion of this Debenture.

                                        (ii) Insufficient Authorized Shares. If at any time while any of the Debentures remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the Debentures a at least a number of shares of Common Stock equal to the Required Reserve Amount (an "Authorized Share Failure"), then the Company shall immediately take all
action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Debentures then outstanding.  Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event
later than sixty (60) days after the occurrence of such Authorized Share
Failure, the Company shall hold a meeting of its stockholders for the approval
of an increase in the number of authorized shares of Common Stock. In connection
with such meeting, the Company shall provide each stockholder with a proxy
statement and shall use its reasonable commercial efforts to solicit its
stockholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders that they
approve such proposal. 

8 

          The
  Company shall use its reasonable commercial efforts to authorize and reserve
  a sufficient number of shares of Common Stock as soon as practicable following
  the earlier of (i) such time that the Holder notifies the Company or that the
  Company otherwise becomes aware that there are or likely will be insufficient
  authorized, reserved and unissued shares to allow full Conversion of the outstanding
  amount of the Debenture, based upon the Holder’s Reserved Share Allocation
  (as defined below). The Company shall send notice to the Holder of the authorization
  of additional shares of Common Stock and the date of such authorization. 

                    (d)      Method
of Conversion. 

                                        (i)      Mechanics
of Conversion. Subject to Section 3(a) and the other provisions of this
Debenture, this Debenture may be converted into Common Stock by the Holder in
whole or in part at any time and from time to time after the Original Issue
Date, by (A) submitting to the Company a duly executed notice of Conversion in
the form attached hereto as Exhibit A ("Notice of Conversion") by
facsimile dispatched prior to 7:00 p.m., New York City time (the "Conversion
Notice Deadline") on the date specified therein as the Conversion Date (as
defined herein) (or by other means resulting in written notice to the Company on
the date specified therein as the Conversion Date) to the office of the Company;
which notice shall specify the principal amount of this Debenture to be
converted (plus the dollar amount of any accrued but unpaid Interest and other
Required Cash Payments that the Holder elects to convert into Common Stock), the
applicable Conversion Price, and the number of shares of Common Stock issuable
upon such Conversion; and (B) subject to Section 3(d)(vii), surrendering the
Debenture at the principal office of the Company. 

                                        (ii)      Conversion
Date. The "Conversion Date" shall be the date specified in the
Notice of Conversion, provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in, or reasonably expected to result in,
written notice) to the Company or its transfer agent (“Transfer Agent”)
before 7:00 p.m., New York City time, on the date so specified, otherwise the
Conversion Date shall be the date that the Notice of Conversion (or a facsimile
thereof) is first received by the Company or its Transfer Agent. The Person or
Persons entitled to receive the shares of Common Stock issuable upon Conversion
shall be treated for all purposes as the record holder or holders of such
securities as of the Conversion Date. 

9 

                                        (iii)      Delivery
of Common Stock Upon Conversion. Upon submission of a Notice of
Conversion, the Company shall, by no later than the third (3rd) Business Day
after the Conversion Date (the "Conversion Shares Delivery Deadline"),
issue and deliver (or cause its Transfer Agent so to issue and deliver) in
accordance with the terms hereof to or upon the order of the Holder that number
of shares of Common Stock (“Conversion Shares”) for the principal amount
of this Debenture (plus the dollar amount of any accrued but unpaid Interest and
other Required Cash Payments that the Holder elects to convert into Common
Stock) converted as shall be determined in accordance herewith. Upon the
Conversion of this Debenture, the Company shall, at its own cost and expense,
take all necessary action, including obtaining and delivering an opinion of
counsel to assure that the Company's Transfer Agent shall issue stock
certificates in the name of Holder (or its nominee) or such other Persons as
designated by Holder and in such denominations to be specified at Conversion
representing the number of shares of Common Stock issuable upon such Conversion.
The Company warrants that no instructions other than these instructions have
been or will be given to the Transfer Agent of the Common Stock and that the
Shares will be free-trading, and freely transferable, and will not contain a
legend restricting the resale or transferability of the Shares provided the
Shares are being issued during the effectiveness of, and will be sold pursuant
to, an effective registration statement covering the Shares or are eligible for
resale pursuant to Rule 144 or another exemption from registration.

                                        (iv)      Delivery
Failure; Revocation of Conversion. If the Company fails for any reason to
deliver to the Holder a certificate or certificates representing the Conversion
Shares pursuant to Section 3(d)(iii) by the fifth (5th) Trading Day after the
Conversion Date, the Company shall be in default. Nothing herein shall limit a
Holder’s right to pursue actual damages or damages for an Event of Default
pursuant to the terms hereof for the Company’s failure to deliver Conversion
Shares within the period specified herein and such Holder shall have the right
to pursue all remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.

                                       In
addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of the Conversion
Shares by the Conversion Shares Delivery Deadline, or fails to effect delivery
of Default Shares by the Default Share Delivery Deadline (as defined in Section
11 hereof) (each, a “Delivery Failure”), the Holder, at its option, will
be entitled to revoke all or part of the relevant Notice of Conversion (a
“Conversion Revocation”) or rescind all or part of a Default Conversion
Notice (as defined in Section 11) (a “Default Conversion Revocation”) or
rescind all or part of a Major Transaction Conversion Notice (as defined in
Section 4) (a “Major Transaction Conversion Revocation”) or rescind all
or part of the notice of Redemption, including but not limited to a notice of
Mandatory Redemption (a “Redemption Revocation”), as applicable, by
delivery of a notice to such effect to the Company whereupon the Holder shall
regain the rights of a Holder of this Debenture with respect to such unconverted
portions of this Debenture and the Company and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice.

10 

                                        (v)      Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion, or
Upon Submission for Legend Removal. 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 (without legends, if the Unrestricted
Conditions have been met) by the Conversion Shares Deliver Deadline pursuant to
Section 3(d)(iii), or if at any time the Holder submits shares of Common Stock
for legend removal when the Unrestricted Conditions have been met, and the
Company fails to deliver or cause to be delivered to such Holder a certificate
representing such shares that is free from all restrictive and other legends by
the applicable Legend Removal Date (other than due to a delay caused by a third
party over whom the Company has no control, provided that the Company has duly
and timely instructed such third party to timely deliver the shares free from
legends as and when required in this Agreement), and if after such Conversion
Shares Deliver Deadline or Legend Removal Date, as applicable, the Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by such Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion relating to
such Conversion Shares Deliver Deadline or Legend Removal Date, as applicable
(each, 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 so purchased 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, if applicable, either reinstate (or if necessary, reissue)
the portion of the Debenture for which such conversion was not honored or
deliver to the Holder the number of shares of Common Stock that would have been
issued if the Company had timely complied with its delivery requirements under
Section 3(d)(iii). 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 the 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 the
Debenture as required pursuant to the terms hereof. 

                                        (vi)     
Surrender of Debenture Upon Conversion; Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon Conversion of
this Debenture in accordance with the terms hereof, the Holder shall
not be required to physically surrender the Debenture to the Company unless all
of this Debenture is converted, in which case such Holder shall deliver the
Debenture being converted to the Company promptly following the Conversion Date
at issue. The Holder and the Company shall maintain records showing the amount
of this Debenture that is so converted and the dates of such Conversions or
shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Debenture upon each
such Conversion. In the event of any dispute or discrepancy, such records of the
Company shall be controlling and determinative in the absence of manifest
error.

11 

                                        (vii)     
No Fractional Shares. If any Conversion of this Debenture would
result in a fractional share of Common Stock or the right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon Conversion of this Debenture
shall be the next higher number of shares. 

                                        (viii)      Lost
or Stolen Debentures. Upon receipt by the Company of evidence of the
loss, theft, destruction or mutilation of a Debenture, and (in the case of loss,
theft or destruction) of indemnity reasonably satisfactory to the Company, and
upon surrender and cancellation of the Debenture, if mutilated, the Company
shall execute and deliver a new Debenture of like tenor and date. 

                    (e)     
Legends.

                                        (i)     
Restrictive Legends. The Holder understands that the Debentures
and, until such time as Conversion Shares, Interest Shares and any other shares
issued under this Debenture (collectively, the “Issued Common Shares”) may be
sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, the Conversion Shares
and any other Issued Common Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities): 

  
    
      
                  "THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
          UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
          LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
          ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
          SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY
          SATISFACTORY TO COUNSEL TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
          UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
        

      

    

  

12 

                                        (ii)      Removal
of Legends. The Company will issue and deliver the Conversion Shares,
Interest Shares and any other Issued Common Shares without restrictive legends
(including the legend set forth above in this Section 3(e)), and will remove, or
cause its Transfer Agent to remove at the Company’s expense, any restrictive
legends on any Conversion Shares that contain restrictive legends (including the
legend set forth above in this Section 3(e)), if (a) such holder provides the
Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to counsel for the Company (the reasonable cost of which shall be
borne by the Company), to the effect that a public sale or transfer of such
Security may be made without registration under the Act, or (b) such holder
provides the Company with reasonable assurances (“Reasonable Assurances”)
(which assurances shall be adequate to the Company or the Company’s counsel)
that such Security can be sold pursuant to Rule 144 (each, a “Legend Removal
Condition”), provided that the Reasonable Assurances shall be deemed to have
been met and shall be deemed adequate to the Company and its counsel if (i) such
Security has been held by the Investor for at least six (6) months, (ii) the
Company is then current in its public reporting requirements, (iii) the Investor
is not then, and has not within the prior 60 days been, an affiliate of the
Company, and (iv) the Investor has provided the Company with the requisite
seller’s representation letter. The Holder agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable prospectus delivery requirements, if
any.

                    (f)      DTC
Delivery. In lieu of delivering physical certificates representing the
unlegended shares of Common Stock (the “Unlegended Shares”), provided the
Company’s Transfer Agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon
request of the Holder, so long as the certificates therefor are not required to
bear a legend and the Holder is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its Transfer Agent to
electronically transmit the Unlegended Shares to the Holder by crediting the
account of the Holder's prime broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system. The time periods for delivery and
penalties described herein shall likewise apply to the electronic transmittals
described herein.

                    (g)     
Status as Shareholder. Upon submission of a Notice of Conversion by a
Holder, (i) the portion of the Debenture covered thereby (other than the
portion, if any, pursuant to the Conversion of which shares cannot be issued
because their issuance would exceed such Holder's allocated portion of the
Required Reserve Amount) shall be deemed converted into shares of Common Stock
and (ii) the Holder's rights as a Holder of such converted portion of this
Debenture shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any other remedies provided
herein or in the Transaction Documents or otherwise available at law or in
equity to such Holder because of a failure by the Company to comply with the
terms of this Debenture, including but not limited to the remedies provided in
Section 3(d)(iv), Section 3(d)(v), Section 11, Section 13 and Section 14 hereof.
Notwithstanding the foregoing, if a Holder initiates a Conversion Revocation, a
Default Conversion Revocation or a Redemption Revocation pursuant to Section
3(d)(iv) hereof, the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portion of this Debenture as specified in Section
3(d)(iv) and the Company shall, as soon as practicable, return such unconverted
portion of this Debenture to the Holder or, if the Debenture has not been
surrendered, adjust its records to reflect that such portion of the Debenture
has not been converted. In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, the right to receive Liquidated
Damages to the extent required hereby for such Event of Failure and any
subsequent Event of Failure and the right to receive the Default Amount pursuant
to Section 11 to the extent required thereby) for the Company's failure to
convert this Debenture. 

13 

          Section
4.      Rights Upon Major
Transaction or Change of Entity Transaction. 

                         (a)     
Definitions. For purposes hereof,

          “Change
of Entity Transaction” means (i) a consolidation, merger, exchange of
shares, recapitalization, reorganization, business combination or other similar
event, in one or a series of transactions (A) following which the holders of
Common Stock immediately preceding such consolidation, merger, change of shares,
recapitalization, reorganization, business combination or event either (1) no
longer hold a majority of the shares of Common Stock of the Company or (2) no
longer have the ability to elect a majority of the board of directors of the
Company or (B) as a result of which shares of Common Stock shall be changed into
(or the shares of Common Stock become entitled to receive) the same or a
different number of shares of the same or another class or classes of stock or
securities of the Company or another entity. 

          “Sufficient
Trading Characteristics” shall mean that the average daily dollar trading
volume of the common stock of such entity on its primary exchange or market is
equal to or in excess of $100,000 for the 90th through the 31st day prior to the
public announcement of the transaction in respect of which this definition shall
be applied. 

          “Permissible
Change of Entity Transaction” shall mean a Change of Entity Transaction
where the Successor Entity (as defined below) (A) is a publicly traded Company
whose common stock is quoted on or listed for trading on an Approved Primary
Market, (B) has Sufficient Trading Characteristics (as defined above) and (C)
meets the Assumption Requirements (as required in Section 4(b) below), or any
other Change of Entity Transaction with respect to which the Holder provides the
Company with a Major Transaction Approval Notice (as defined in subsection (d)
immediately below). 

          “Impermissible
Change of Entity Transaction” shall mean a Change of Entity Transaction
which does not qualify as a Permissible Change of Entity Transaction. 

14 

          “Major
Transaction” means

          (i)      an
Impermissible Change of Entity Transaction; and 

          (ii)      the
sale or transfer of more than 40%, in the aggregate, of the properties or assets
of the Company to another Person or Persons in any rolling 12 month period (an
“Asset Sale”); and 

          (iii)     
a purchase, tender or exchange offer made to and accepted by the holders of more
than the 50% of the outstanding shares of Common Stock. 

                    (b)      Assumption
Upon Change of Entity Transaction. The Company shall not, so long as any of
the Debentures remain outstanding, enter into or be party to a Change of Entity
Transaction unless any Person purchasing the Company’s assets or Common Stock,
or any successor entity resulting from such Change of Entity Transaction (in
each case, an “Successor Entity”), assumes (an “Assumption”) in
writing all of the obligations of the Company under the Debenture and the other
Transaction Documents in accordance with the provisions of this Section 4(b)
pursuant to written agreements in form and substance reasonably satisfactory to
the Required Holders and reasonably approved by the Required Holders prior to
such Change of Entity Transaction, including agreements to deliver to each
holder of Debentures in exchange for such Debentures a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to the Debenture, including, without limitation, having a principal
amount and interest rate equal to the principal amount and Interest rate of the
Debentures held by such holder, having similar conversion rights as the
Debentures (including but not limited to a similar Conversion Price and similar
Conversion Price adjustment provisions) and having similar priority to the
Debentures, and reasonably satisfactory to the Required Holders. Upon the
occurrence of any Change of Entity Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Change of Entity Transaction, the provisions of the Debenture referring to the
"Company" shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under the Debenture with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of a Change of Entity
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon conversion or redemption of the Debentures at any
time after the consummation of the Change of Entity Transaction, in lieu of the
shares of Common Stock (or other securities, cash, assets or other property)
issuable upon the conversion of the Debentures prior to such Change of Entity
Transaction, such shares of publicly traded common stock (or their equivalent)
of the Successor Entity, as adjusted in accordance with the provisions of the
Debenture. The provisions of this Section shall apply similarly and equally to
successive Change of Entity Transactions and shall be applied without regard to
any limitations on the conversion of the Debenture. The requirements of this
Section 4(b) are referred to herein as the “Assumption Requirements.” 

15 

                    (c)     
Notice of Transaction. At least thirty (30) days prior to the consummation
of a Major Transaction or Change of Entity Transaction, but not prior to the
public announcement of such transaction, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a
"Transaction Notice"), which notice shall specify the nature and terms of
the proposed transaction (including notice of whether or not such transaction
constitutes a Major Transaction) and nature of the Successor Entity (if any).
For purposes of clarification, notwithstanding the Holder’s receipt of a
Transaction Notice, the Holder shall retain its right to convert this Debenture
into common stock up through the consummation of the closing of such Major
Transaction. 

                    (d)     
Redemption Right Upon Major Transaction. At any time during the period
beginning after the Holder's receipt of a Transaction Notice and ending on the
Trading Day five (5) Business Days prior to the consummation of such Major
Transaction, the Holder may require the Company to redeem (a “Redemption Upon
Major Transaction”) all or any portion of the Holder’s Debenture by
delivering written notice thereof ("Major Transaction Redemption Notice")
to the Company, which Major Transaction Redemption Notice shall indicate the
aggregate principal amount of Debentures (the “Redemption Principal
Amount”) that the Holder is electing to be redeemed. Unless otherwise
indicated by the Holder to the Company in writing, in the event that the holder
does not provide a Major Transaction Redemption Notice to the Company, the
Holder shall be deemed to have delivered a Major Transaction Redemption Notice,
on the last day such notice is allowable, requiring the Company to redeem 100%
of the Holder’s Debenture. The Redemption Principal Amount of Debentures subject
to redemption pursuant to this Section 4(d) shall be redeemed by the Company in
cash equal to the sum of the Redemption Principal Amount being redeemed and any
accrued and unpaid Interest with respect to such Redemption Principal Amount,
and any other Required Cash Payments (such amounts in addition to the Redemption
Principal Amount are referred to herein as the “Supplementary Amounts”).

                    (e)      Escrow;
Payment of Major Transaction Redemption Price. The Company shall not effect
a Major Transaction in the event that the Holder has delivered (or is deemed to
have delivered) a Major Transaction Redemption Notice unless the Company shall
first place, or shall cause the Successor Entity to place, into an escrow
account with an independent escrow agent, at least three (3) Business Days prior
to the closing the Major Transaction (the “Major Transaction Escrow
Deadline”), an amount equal to the Major Transaction Redemption Price.
Concurrently upon closing of any Major Transaction, the Company shall pay or
shall instruct the escrow agent to pay the Major Transaction Redemption Price to
the Holder, which payment shall constitute a Redemption Upon Major Transaction
of the Debenture.

                    (f)      Injunction.
In the event that the Company attempts to consummate a Major Transaction for
which the Holder has delivered (or is deemed to have delivered) a Major
Transaction Redemption Notice without placing the Major Transaction Redemption Price in escrow in accordance with subsection (e)
above or without payment of the Major Transaction Redemption Price to the Holder
upon consummation of such Major Transaction, the Investor shall have the right
to apply for an injunction in any state or federal courts sitting in the City of
New York, borough of Manhattan to prevent the closing of such Major Transaction
until the Major Transaction Redemption Price is paid to the Holder, in full.

16 

                    (g)      Mechanics
of Redemptions Upon Major Transactions. Redemptions required by this Section
4 shall be made in accordance with the provisions of Section 12 and shall have
priority to payments to shareholders in connection with a Major Transaction. To
the extent redemptions required by this Section 4(g) are deemed or determined by
a court of competent jurisdiction to be prepayments of the Debenture by the
Company, such redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 4, until the Major
Transaction Redemption Price (together with any Supplementary Amounts thereon)
is paid in full, the Redemption Principal Amount submitted for redemption under
this Section and the Supplementary Amounts may be converted (a “Major
Transaction Conversion”), in whole or in part, by the Holder into shares of
Common Stock upon written notice (“Major Transaction Conversion Notice”)
to the Company (or the Successor Entity, if applicable), or in the event the
Conversion Date is after the consummation of a Change of Entity Transaction (as
defined above), into shares of publicly traded common stock (or their
equivalent) of the Successor Entity pursuant to Section 4(b), if applicable.
Unless otherwise indicated by the Holder in the applicable Notice of Conversion,
any principal amount of this Debenture converted during the period from the date
of the actual (or deemed) Major Transaction Redemption Notice until the date the
Major Transaction Redemption Price is paid in full shall be considered to be a
conversion (instead of a Redemption) of a portion of the Debenture that would
have been subject to such Redemption, and any amounts of this Debenture
converted from time to time during such period shall be converted in full into
Common Stock at the Conversion Price then in effect, and the dollar amount so
converted into Common Stock shall be deducted from the Redemption Principal
Amount (as defined above) and any Supplementary Amounts that are subject to such
redemption. 

          Section
5.      Effect of Certain
Events.

                    (a)     
Participation. The Holder, as the holder of the Debenture, shall be
entitled to receive such dividends paid and distributions made to the holders of
Common Stock to the same extent as if the Holder had completely converted the
Debenture into Common Stock (without regard to any limitations on Conversion
herein or elsewhere and without regard to whether or not a sufficient number of
shares are authorized and reserved to effect any such exercise and issuance) and
had held such shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock.

                    (b)     
Voting Rights. The Holder shall obtain common shareholder voting
rights with respect to the number of shares of Common Stock
held by the Holder at any given time (subject to the Beneficial Ownership
Limitations). 

17 

                    (c)      Rights
Upon Issuance of Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase shares,
warrants, securities or other property pro rata to the record holders of any
class of Common Shares (the “Purchase Rights”), then the Holders will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of Common Shares acquirable upon complete Conversion of the
Debenture (without taking into account any limitations or restrictions on the
convertibility of the Debenture) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Shares are to
be determined for the grant, issue or sale of such Purchase Rights. 

          Section
6.      Adjustment Upon
Issuance of Shares of Common Stock or Common Stock Equivalents and
Certain Other Events; Notice of Adjustment; Notice Failure
Adjustment.

                    
(a)      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 Fixed Conversion Price shall be reduced, but not increased
(each such reduction is referred to as a “Subsequent Issuance Adjustment,” and
all such reductions are collectively referred to as the “Subsequent Issuance
Adjustments”) to equal the Base Conversion Price. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. If the
Company issues securities convertible into Common Stock, 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 6(a), 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 6(a), 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. 

18 

                    (b)      Record
Date. If the Company takes a record of the holders of shares of Common Stock
for the purpose of entitling them (i) to receive a dividend or other
distribution payable in shares of Common Stock, Options or in Convertible
Securities or (ii) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

                    (c)      Subsequent
Rights Offerings. If the Company, at any time prior to the date that all of
the Debentures have been converted, redeemed or otherwise satisfied in
accordance with their terms, 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 (the “Base Rights
Offering Price”) that is lower than the Conversion Price then in effect,
then the Conversion Price shall be reduced (but not increased) to the Base
Rights Offering Price. 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. No adjustment shall be made hereunder if such adjustment
would result in an increase of the Conversion Price then in effect. 

                    (d)      Pro
Rata Distributions. If the Company, at any time prior to the date that all
of the Debentures have been converted, redeemed or otherwise satisfied in
accordance with their terms, distributes to all holders of Common Stock (and not
to the Holders) a promissory note or notes or other debt or equity securities or
rights or warrants to subscribe for or purchase any security (other than the
Common Stock, which shall be subject to Section 6(a) – 6(d) above), 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 promissory note or notes or other
debt or equity securities 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. 

19 

                    (e)      Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a greater number of shares, then, after the date of record for effecting
such subdivision, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) the shares of Common Stock acquirable hereunder into a smaller number
of shares, then, after the date of record for effecting such combination, the
Fixed Conversion Price in effect immediately prior to such combination will be
proportionately increased. 

                    (f)      Notice
of Dilutive Issuances and Adjustments; Notice Failure Adjustment. The
Company shall notify the Holder in writing, no later than one (1) Business Day
following any Dilutive Issuance, indicating therein the applicable issuance
price, or applicable reset price, exchange price, conversion price, exercise
price and other pricing terms (such notice, the “Dilutive Issuance
Notice”). In the event that the Company fails to provide the Holder with a
Dilutive Issuance Notice within five (5) Business Days of any Dilutive Issuance
(the “Dilutive Issuance Notice Deadline”), the Conversion Price shall be
permanently reduced (but not increased) on the Dilutive Issuance Notice
Deadline, and on the same day of each calendar month thereafter until such
notice is given (each, a “Notice Failure Adjustment Date”), or in each
case if not a business day, then on the next business day (each, a “Notice
Failure Adjustment”) to a price equal to the lesser of (a) the Conversion
Price then in effect or (b) 100% of the VWAP for five (5) trading day period
immediately preceding the applicable Notice Failure Adjustment Date
(collectively, the “Notice Failure Adjustment Price”). 

                    For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 6(f), upon the occurrence of any
Dilutive Issuance, the Holder is entitled to receive a number of Conversion
Shares based upon the Conversion Price (as adjusted) on or after the date of
such Dilutive Issuance, as applicable, regardless of whether the Holder
accurately refers to the Conversion Price (as adjusted) in the Notice of
Conversion. Whenever the Conversion Price is adjusted pursuant to this Section 6
or otherwise, the Company shall promptly mail to the Holder a notice (a
“Conversion Price Adjustment Notice”) setting forth the Conversion Price
after such adjustment and setting forth a statement of the facts requiring such
adjustment. For purposes of clarification, whether or not the Company provides a
Conversion Price Adjustment Notice pursuant to this Section 6(f), upon the
occurrence of any event that leads to an adjustment of the Conversion Price, the
Holders are entitled to receive a number of Conversion Shares based upon the new
Conversion Price, as adjusted, for Conversions occurring on or after the date of
such adjustment, regardless of whether a Holder accurately refers to the
adjusted Conversion Price in the Notice of Conversion.

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

          Section
7.      Automatic Redemption
at End of Term.

                    The
outstanding principal amount of any Debenture that has not been submitted for
Conversion into Common Stock and has not been subjected to a Default Notice by 6
p.m., New York City time, on the Maturity Date (the “Automatic Redemption
Date”), shall be automatically redeemed (“Automatic Redemption”) for
a redemption price, in cash, equal to the outstanding principal amount of this
Debenture and other Required Cash Payments (the “Automatic Redemption
Amount”). The Automatic Redemption Amount shall be due and payable within
five (5) Trading Days of the Automatic Redemption Date (the “Automatic
Redemption Due Date”). For purposes of clarity, the Company shall pay the
Automatic Redemption Amount in cash, and shall not have the option of paying the
Automatic Redemption Amount in shares of Common Stock. At the Company’s option,
at maturity the Company may pay the accrued and unpaid interest on the Debenture
either (i) in cash, or (ii) assuming such payment is made by the Automatic
Redemption Due Date, by delivering a number of shares (“Interest Payment
Shares,” which shall also be considered to be “Conversion Shares” for
purposes of the share reservation requirements and legend removal requirements)
to the Holder equal to the amount of the unpaid interest divided by the Interest
Conversion Price. 

21 

          Section
8.      Senior Debt; Secured
Obligation. 

                    (a)      Senior
  Debt; Priority. The Debentures shall constitute senior secured debt
  of the Company and shall be secured by all assets of the Company and its
  subsidiaries. Upon issuance of the Debentures, the Debentures shall be senior to
  all other outstanding Indebtedness of the Company as to right of payment and as
  to security in the Company’s assets and, prior to the Closing of this Debenture,
  the Company shall have obtained a signed subordination agreement to such effect
  from each holder of indebtedness that is secured against any assets of the
  Company. All future debt issued by the Company or any Subsidiary shall be
  subordinated and junior to the Debentures as to right of payment and as to
  security in the Company’s assets. Neither the Company nor any Subsidiary shall,
  without the written permission of the Holder, issue any other debt that is
  senior to, or pari passu with, the Debentures as to right of payment or as to
  security in the Company’s assets. From the Original Issue Date of the Debentures
  through the date that all of the Debentures have been paid in full or converted
  in full, before entering into, or permitting any Subsidiary to enter into, any
  future debt with a third party, the Company shall first obtain a subordination
  agreement, satisfactory to Holder, from the proposed debt holder.

                    (b)     
Secured Obligation. The obligations of the Company under this Debenture
are secured by all assets of the Company and its Subsidiaries pursuant to the
Security Agreement (“Security Agreement”) of date even herewith, between
the Company, certain of the Subsidiaries of the Company and the Holder. 

                    (c)      Release
of Security Interest. All of the Investor’s Security Interests against the
assets of the Company and its Subsidiaries shall automatically be released on
the Lien Release Date, and the Investor agrees to file all necessary documents
evidencing such automatic release within ten (10) Business Days following the
Lien Release Date. For purposes hereof, the “Lien Release Date” shall mean the
date upon which the total aggregate dollar volume of Common Stock that has
traded on the Company’s Principal Market during all Trading Days that have
occurred from the Trading Day immediately following the Conversion Share
Liquidity Date (as defined below) through such Lien Release Date equals or
exceeds the quotient obtained when (i) the Original Principal Amount of the
Debenture plus all accrued and unpaid interest, is divided by (ii) 0.15. For
purposes hereof, “Conversion Share Liquidity Date” shall mean the date after
which the Conversion Shares issued or issuable upon conversion of this Debenture
can be sold under Rule 144 without conditions or volume restrictions. 

          Section
9.      Certain Negative
Covenants; Misc. Without the prior written consent of the Required
Holders, for so long as any of the Debentures remain Outstanding, the Company
shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly: 

                    (a)      (i)
pay, declare or set apart for such payment, any dividend or other distribution
(whether in cash, property or other securities) on shares of capital stock or
(ii) directly or indirectly or through any Subsidiary of the Company make any
other payment or distribution in respect of its capital stock. For purposes
hereof, each Debenture or any portion thereof shall be deemed to be
“Outstanding” until such time as it has been converted, redeemed or
otherwise satisfied in accordance with its terms. 

22 

                    (b)     
redeem, repay, repurchase or otherwise acquire (whether for cash or in exchange
for property or other securities or otherwise) in any one transaction or series
of related transactions any shares of capital stock of the Company or any
warrants, rights or options to purchase or acquire any such shares, other than
as to the Conversion Shares as permitted under the Transaction Documents. 

                    (c)     
by amendment of its charter documents, including but not limited to the Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Debenture, and will at all times in good faith carry out all of
the provisions of the Debenture and take all action as may be required to
protect the rights of the Holder of the Debenture. 

                    (d)      enter
into, create, incur, assume or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "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, that is senior to, or pari passu
with, the Debenture, unless the Company shall have first obtained a
subordination agreement relating to any such Lien, executed by the Investor and
the lender of the funds underlying such proposed Lien, whereby the lender agrees
that such Lien shall be junior and subordinate to Investor’s lien on the
Company’s assets (after which such Lien shall be considered a “Permitted Lien”);

                    
(e)      enter into any transaction with any affiliate
of the Company, except with respect to standard employment arrangements with
officers and directors and employees of the Company;

                    
(f)      redeem, defease, repurchase, repay or
make any payments in respect of, by the payment of cash or cash equivalents (in
whole or in part, whether by way of open market purchases, tender offers,
private transactions or otherwise), all or any portion of any Indebtedness,
whether by way of payment in respect of principal of (or premium, if any) or
interest on such Indebtedness, if at the time such payment is due or is
otherwise made or after giving effect to such payment, an event constituting, an
Event of Default has occurred and is continuing; 

                    (g)      make
any payment on any indebtedness owed to officers, directors or Affiliates,
except with respect to payments pursuant to existing employment arrangements
with such officers, directors or Affiliates; or 

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

23 

          Section
10.      Events of
Default. 

          Unless
  waived by the Required Holders, each of the following events shall be considered
  to be an "Event of Default": 

                    (a)      Failure
to Make Cash Payments When Due. The Company fails to pay (each, a
“Payment Failure”) any cash payments due to the Holder under the terms of
this Debenture when due under this Debenture, whether on an interest payment due
date, at maturity, upon mandatory prepayment, upon acceleration, upon an Event
of Failure, or upon any Redemption or otherwise or fails to pay any Liquidated
Damages or other cash payments that are due and owing under this Debenture or
any other Transaction Document when due, including but not limited to all
accrued and unpaid Interest and Redemption Amounts, and accrued and unpaid
Interest thereon (each cash payment referred to above is referred to as a
“Required Cash Payment”), or fails to pay any late fees accrued on any of
the above, and such Payment Failure continues for a period of ten (10) Business
Days after receipt of written notice of such Payment Failure; or 

                    (b)     
Conversion and Delivery of the Shares. The Company (i) fails to issue and
deliver shares of Common Stock to the Holder upon exercise by the Holder of the
Conversion Rights of the Holder in accordance with the terms of this Debenture
by the tenth (10th) Business Day after the Conversion Date, or (ii)
fails for a period of ten (10) Business days to transfer or cause its Transfer
Agent to transfer (electronically or in certificated form) any certificate for
shares of Common Stock issued or issuable to the Holder upon Conversion of the
Debenture as and when required by the terms of this Debenture; or 

                    (c)      Breach
of Covenants. The Company breaches any representation, warranty,
covenant or other term or condition of this Debenture or any of the other
Transaction Documents in any material respect, and such breach is not cured by
the earlier to occur of (i) ten (10) Trading Days after written notice of such
breach to the Company from the Holder; or 

                    (d)      Breach
of Representations and Warranties. Any representation or warranty of
the Company made herein, in any of the Transaction Documents or in any
agreement, statement or certificate given in writing pursuant hereto or the
Registration Rights Agreement shall be false or misleading in any material
respect when made and the breach of which has a material adverse effect on the
rights of the Holder with respect to this Debenture, the Registration Rights
Agreement, the Security Agreement; or 

                    (e)     Receiver
or Trustee. The Company or any Subsidiary of the Company shall make
an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed; or 

                    (f)      Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Company or any "significant Subsidiary" (as defined in Rule 1-02(w) of Regulation S-X
promulgated under the 1933 Act) of the Company, or the Company or any
Significant Subsidiary shall otherwise be subject to a Bankruptcy Event; or 

24 

                    (g)      Delisting
of Common Stock. A Delisting Event (as defined below) occurs and remains
uncured for a period of 10 Trading days, where a “Delisting Event” means
that the Common Stock is not listed or traded with an Approved Primary Market;
or 

                    (h)     
Failure to Authorize and Reserve Common Stock. The Holder's Reserved
Share Allocation is less than the number of shares of Common Stock that the
Holder would be entitled to receive upon a conversion of the full Conversion
Amount of this Debenture (without regard to any Beneficial Ownership Limitations
on conversion set forth in Section 3(a)(ii) or otherwise), and such shortfall is
not cured within ten (10) Business Days; or

                    (i)      Legend
Removal Failure. A Legend Removal Failure (as defined below) occurs and
remains uncured for a period of ten (10) Business days, where “Legend Removal
Failure” means a failure by the Company (other than due to a delay caused by
a third party over whom the Company has no control, provided that the Company
has duly and timely instructed such third party to timely deliver the shares
free from legends as and when required in this Agreement) to issue
Conversion Shares or Payment Shares without restrictive legends or to remove
restrictive legends from Conversion Shares, Interest Payment Shares, or the
expense shares when so required (or to withdraw any stop transfer instructions
in respect thereof), in each case pursuant to Section 3(e) hereof, or otherwise
pursuant to this Debenture or any of the other Transaction Documents; or

                    (j)     
Corporate Existence; Major Transaction. The Company has effected a
Major Transaction without paying the Major Transaction Redemption Price to the
Holder pursuant to Section 4(d) in the event the Holder delivered (or is deemed
to have delivered) a Major Transaction Redemption Notice or, if the Holder did
not elect a Redemption Upon Major Transaction (if applicable), the Company has
failed to meet the Assumption Requirements of Section 4(b) prior to effecting a
Change of Entity Transaction; or 

                    (l)     
Security; Impermissible Liens. Any security interest in the
Collateral (as defined in the Security Agreement) ceases to be in effect or
properly perfected as and when required by the terms of this Debenture or the
Security Agreement, or the Company creates or suffers to exist any Lien upon any
of its properties, except for Permitted Liens; or 

                    (m)      Cross-Default.
A default in the payment when due on any Indebtedness of the Company in excess
of $100,000, in the aggregate; or 

25 

                    (n)      Litigation.
A judgment is rendered against the Company for an amount in excess of
$100,000. 

          Section
11.      Mandatory Redemption;
Posting of Bond. 

                    (a)      Mandatory
Redemption. If any Events of Default shall occur then, upon the occurrence
and during the continuation of any Event of Default, at the option of the
Holder, such option exercisable through the delivery of written notice to the
Company by such Holders (the "Default Notice"), the Debenture shall
become immediately due and payable and the Company shall pay to the Holder (a
“Mandatory Redemption”), in full satisfaction of its obligations hereunder, an
amount (such amount referred to herein as the "Default Amount" or the
“Mandatory Redemption Amount”) equal to the greater of (i) and (ii)
immediately below: 

                                        (i)  the
Mandatory Redemption Premium, multiplied by the sum (such sum of (x), plus (y),
plus (z) immediately below shall be referred to herein as the "Default
Conversion Sum") of

          (x)     
the aggregate outstanding principal amount of this Debenture, PLUS

          (y)      all
accrued and unpaid Interest thereon for the period beginning on the Original
Issue Date and ending on the date of payment of the Default Amount (the
"Default Payment Date"), PLUS

          (z)     
all accrued and unpaid Liquidated Damages and other Required Cash Payments, if
any,

and

                                        (ii)
the Conversion Value of the Default Conversion Sum to be prepaid, where
”Conversion Value” means

          (x)     
the Default Conversion Sum divided by the Conversion Price in effect on the date
that the Company pays the Default Amount;

MULTIPLIED BY

          (y)      the
greater of (i) the Market Price (as defined herein) for the Common Stock on the
Default Notice Date or (ii) the Market Price on the date that the Company pays
the Default Amount.

26 

          After
an Event of Default occurs, the Conversion Price shall be permanently decreased
(but not increased) on the first Trading Day of each calendar month thereafter
(each a “Default Adjustment Date”) until the Default Amount is paid in
full, to a price equal to the lesser of (i) the Conversion Price then in effect,
or (ii) the lowest Market Price that has occurred on any Default Adjustment Date
since the date that the Event of Default began. Notwithstanding the
occurrence of an Event of Default, Liquidated Damages and any other Required
Cash Payments shall continue to accrue. Five (5) Business Days after the
Company’s receipt of the Holder’s Default Notice (the “Default Amount Due
Date”), the Default Amount, together with all other amounts payable
hereunder, shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived, together with
all costs, including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity. If the Company fails to pay the Default
Amount by the Default Amount Due Date, (i) the Conversion Price shall be
permanently decreased (but not increased)(each, a “Default Adjustment”)
on the first Trading Day of each calendar month thereafter (each a “Default
Adjustment Date”) until the Default Amount is paid in full, to a price equal
to the lesser of (x) 90% of the Conversion Price in effect on the first such
Default Adjustment Date, or (y) the lowest Market Price that has occurred on any
Default Adjustment Date since the date that the Event of Default began and (ii)
at any time thereafter, the Holder shall have the right at any time, and from
time to time, so long as the Company remains in default (and so long and to the
extent that there are sufficient authorized shares), to require the Company,
upon written notice (“Default Conversion Notice”) (which may be given one
or more times, from time to time anytime after the Default Amount Due Date), to
immediately issue, in lieu of all or any specified portion (the “Specified
Portion”) of the unpaid portion (the “Unpaid Portion”) of the Default
Amount (together with any Late Payment Fees accrued thereon), a number of shares
(the “Default Shares”) of Common Stock, subject to the Beneficial
Ownership Limitation then in effect, equal to the Specified Portion of the
Default Amount (together with any accrued Late Payment Fees thereon) divided by
the Conversion Price in effect on the date such shares are issued to the Holder,
PROVIDED THAT, the Holder may require that such payment of shares be made in one
or more installments at such time and in such amounts as Holder chooses. The
Default shares are due within five (5) Business Days of the date that the Holder
delivers a Default Conversion Notice to the Company (the “Default Share
Delivery Deadline”). 

          To
the extent redemptions required by this Section 11 are deemed or determined by a
court of competent jurisdiction to be prepayments of the Debenture by the
Company, such redemptions shall be deemed to be voluntary prepayments. If the
Company is unable to redeem all of the Debenture submitted for redemption, the
Company shall redeem a pro rata amount from each Holder based on the principal
amount of the Debenture submitted for redemption by such Holder relative to the
total principal amount of Debentures submitted for redemption by all Holders.
The parties hereto agree that in the event of the Company's redemption of any
portion of the Debenture under this Section 11, the Holder's damages would be
uncertain and difficult to estimate because of the parties' inability to predict
future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any Mandatory
Redemption Amount due under this Section 11 is intended by the
parties to be, and shall be deemed, a reasonable estimate of the Holder's actual
loss of its investment opportunity and not as a penalty. 

27 

          The
Holder shall not be entitled to receive Default Shares on a given date if and to
the extent that such issuance would cause the Beneficial Ownership Limitation
then in effect to be exceeded. If and to the extent that the issuance of Default
Shares with respect to a given Specified Portion would result in a violation of
the Beneficial Ownership Limitation, then that particular Specified Portion
shall be automatically reduced to a value that would cause the number of Default
Shares to be issued to equal the Maximum Percentage, and the amount of such
reduction shall be added back to the Unpaid Portion of the Default Amount. 

          Upon
the payment in full of the Mandatory Redemption Amount, the Holder shall
promptly surrender this Debenture to or as directed by the Company (or, if
applicable, shall submit a signed notice that such Debenture has been lost,
stolen or destroyed). 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 11. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon. 

                    (b)     
Posting of Bond. In the event that any Event of Default occurs
hereunder or any Event of Default occurs under any of the Transaction Documents,
then the Company may not raise as a legal defense (in any Lawsuit, as defined
below, or otherwise) or justification to such Event of Default any claim that
such Holder or anyone associated or affiliated with such Holder has been engaged
in any violation of law, unless the Company has posted a surety bond (a
“Surety Bond”) for the benefit of such Holder in an amount equal to the
aggregate Surety Bond Value (as defined below) of all of the Holder’s Debenture
(the “Bond Amount”), which Surety Bond shall remain in effect until the
completion of litigation of the dispute and the proceeds of which shall be
payable to such Holder to the extent Holder obtains judgment.

          For
purposes hereof, a “Lawsuit” shall mean any lawsuit, arbitration or other
dispute resolution filed by either party herein pertaining to any of the
Transaction Documents.

          “Debenture
Market Value” shall mean the outstanding principal amount of this Debenture,
plus any accrued and unpaid Interest, and other Required Cash Payments, divided
by the lowest Conversion Price in effect at any time during the period between
the applicable Event of Default and the filing of the Surety Bond required by
this subsection (the “Surety Bond Pricing Period”), all
multiplied by the highest Closing Price during the Surety Bond Pricing Period. 

28 

          “Surety
Bond Value,” for each Debenture, shall mean 100% of the highest Debenture
Market Value (as defined above) of each of the Holder’s Debenture (where, in
each case, such highest market value represents the highest value determined
during the period from the date of the subject Event of Default through the
Trading Day preceding the date that such Surety Bond goes into effect). 

                    (c)      Injunction
and Posting of Bond. In the event that the Event of Default referred to in
subsection 11(b) above pertains to the Company’s failure to deliver unlegended
shares of Common Stock to the Holder pursuant to a Debenture Conversion, legend
removal request, or otherwise, the Company may not refuse such unlegended share
delivery based on any claim that such Holder or any one associated or affiliated
with such Holder has been engaged in any violation of law, unless an injunction
from a court, on prior notice to Holder, restraining and or enjoining Conversion
of all or part of said Debenture shall have been sought and obtained by the
Company and the Company has posted a Surety Bond for the benefit of such Holder
in the amount of the Bond Amount (as described above), which bond shall remain
in effect until the completion of litigation of the dispute and the proceeds of
which shall be payable to such Holder to the extent Holder obtains judgment.

                    (d)      Redemption
by Other Holders. Upon the Company's receipt of notice from any of the
holders of the Other Debentures for redemption or repayment as a result of an
event or occurrence of an Event of Default or a Major Transaction (each, an
"Other Redemption Notice"), the Company shall immediately, but no later
than one (1) Business Day of its receipt thereof, forward to the Holder by
facsimile a copy of such notice. If the Company receives a Redemption Notice and
one or more Other Redemption Notices, during the seven (7) Business Day period
beginning on and including the date which is three (3) Business Days prior to
the Company's receipt of the Holder's Redemption Notice and ending on and
including the date which is three (3) Business Days after the Company's receipt
of the Holder's Redemption Notice and the Company is unable to redeem all
principal, interest and other amounts designated in such Redemption Notice and
such Other Redemption Notices received during such seven (7) Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Debentures (including the Holder) based on the principal amount of the
Debentures submitted for redemption pursuant to such Redemption Notice and such
Other Redemption Notices received by the Company during such seven (7) Business
Day period. 

          Section
12.      Holder’s
Redemptions.

                    (a)      Mechanics
of Holder’s Redemptions. In the event that the Holder has delivered (or is
deemed to have delivered) a Major Transaction Redemption Notice to the Company
pursuant to Section 4(d) or a Default Notice pursuant to Section 11(a),
respectively (each, a “Redemption Notice”), the Holder shall promptly
submit this Debenture to the Company. In the event of a redemption of less
than all of the outstanding principal amount of this Debenture, the Company
shall promptly cause to be issued and delivered to the Holder a new Debenture
representing the outstanding principal amount which has not been redeemed.

29 

                    
(b)      Maximum Interest Rate. To the
extent that the redemption premium for any Redemption is deemed to constitute a
payment of interest under applicable law, the amount of such premium shall not
exceed the maximum rate permitted by applicable law. 

          Section
13.      Late Payment Fees.

                    Any
accrued amount under the Transaction Documents, whether principal, Interest, a
Redemption Amount, Default Amount, or otherwise, which is not paid when within
five (5) Business Days of the date due shall result in a late charge being
incurred and payable by the Company in an amount equal to interest on such
amount at the rate of eighteen (18%) per annum or the maximum rate permitted by
applicable law which shall accrued from the date such amount was due until the
same is paid in full ("Late Payment Fees"). 

          Section
14.      Liquidated Damages;
Injunction. 

                    (a)      Payment
of Liquidated Damages. The accrued Liquidated Damages for each Event of
Failure shall be paid in cash on or before the fifth (5th) day of each month
following a month in which Liquidated Damages accrued, PROVIDED that, at the
option of the Holder (by written notice to the Company), if such payments are
not paid within the time period specified, at the option of the Holder, such
payments shall be added to the outstanding principal amount of this Debenture,
in which event interest shall accrue thereon in accordance with the terms of
this Debenture and such additional principal amount shall be convertible into
Common Stock at the applicable Conversion Price in accordance with the terms of
this Debenture. Nothing herein shall limit the Holder's right to pursue actual
damages (to the extent in excess of the Liquidated Damages) for the Company's
Event of Failure, and the Holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief). The parties hereto acknowledge and agree that the sums
payable as Liquidated Damages or pursuant to a Redemption shall give rise to
liquidated damages and not penalties. The parties further acknowledge that (i)
the amount of loss or damages likely to be incurred by the Holder is incapable
or is difficult to precisely estimate, (ii) the amounts specified bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Holder, and (iii) the parties are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm’s length.
Liquidated Damages are in addition to any other payments that are or become due
hereunder, including but not limited to Interest Payments and any Shares that
the Holder is entitled to receive upon Conversion of this Debenture.

30 

                    
  (b)      Maximum Rate of Interest.
  Nothing contained herein or in any document referred to herein or delivered
  in connection herewith shall be deemed to establish or require the payment of
  a rate of interest or other charges in excess of the maximum permitted by applicable
  law. In the event that the rate of interest or dividends required to be paid
  or other charges hereunder exceed the maximum permitted by such law, any payments
  in excess of such maximum shall be credited against amounts owed by the Company
  to the Holder and thus refunded to the Company.

          Section
15.      Miscellaneous.

                    (a)     
Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available. 

                    (b)     
Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or sent by
United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or five (5) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Company; and the address of the Company shall be as follows:
Attn: Amnon Gonenne, CEO & President; Mabcure Inc., 228 Park Ave S, #15740,
New York, NY 10003, Phone: 646-358-4359, Fax: +32-2 792 4634 . Both the Holder
and the Company may change the address for service by service of written notice
to the other as herein provided. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Debenture, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Conversion
Price, setting forth in reasonable detail, and certifying, the calculation of
such adjustment and (ii) at least twenty (20) days prior to the date on which
the Company closes its books or takes a record (A) with respect to any dividend
or distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Major Transaction, dissolution or liquidation, provided
in each case that such information shall be made known to the public prior to or
in conjunction with such notice being provided to the Holder. 

                    (c)     
Payments. Whenever any payment of cash is to be made by the Company to
any Person pursuant to this Debenture or otherwise pursuant to the Transaction
Documents, such payment shall be made in lawful money of the United States of
America by a check drawn on the account of the Company and sent via overnight
courier service to such Person at such address as previously provided to the
Company in writing; provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the
Company with prior written notice setting out such request and the Holder's wire
transfer instructions. Whenever any amount expressed to be due by the terms of
this Debenture is due on any day which is not a Business Day, the same shall
instead be due on the next succeeding day which is a Business Day and, in the
case of any Interest Payment Date which is not the date on which this Debenture
is paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of Interest due on such date.

31 

                    (d)     
Amendments. Except as otherwise expressly provided herein, the
Debentures, the Other Debentures, and any provision hereof or thereof may only
be amended by an instrument in writing signed by the Required Holders.

                    (e)     
Assignability. This Debenture shall be binding upon the Company and its
successors and assigns, and shall inure to be the benefit of the Holder and its
successors and assigns. 

                    (f)      Payment
of Collection, Enforcement and Other Costs. If (i) this Debenture is placed
in the hands of an attorney for collection or enforcement or is collected or
enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Debenture or to enforce the provisions of this
Debenture or (ii) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Debenture, then the Company shall pay the
reasonable costs incurred by the Holder for such collection, enforcement or
action or in connection with such bankruptcy, reorganization, receivership or
other proceeding, including, but not limited to, attorneys' fees and
disbursements. 

                    (g)      Governing
Law; Equitable Relief. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture or the Transaction Documents
shall be governed by and construed and enforced in accordance with the internal
laws of the State of Nevada, 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 Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in Los Vegas, Nevada. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in Los Vegas,
Nevada for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper or is an inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement 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. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding. 

32 

                    (h)     
Certain Amounts. Whenever pursuant to this Debenture the Company
is required to pay an amount in excess of the principal amount of the
outstanding Debenture (or the portion thereof required to be paid at that time)
plus accrued and unpaid Interest (including but not limited to any Liquidated
Damages or other Required Cash Payments), the Company and the Holder agree that
the actual damages to the Holder from the receipt of cash payment on this
Debenture may be difficult to determine and the amount to be so paid by the
Company represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this
Debenture and to earn a return from the sale of shares of Common Stock acquired
upon Conversion of this Debenture at a price in excess of the price paid for
such Shares pursuant to this Debenture. The Company and the Holder hereby agree
that such amount of stipulated damages is not plainly disproportionate to the
possible loss to the Holder from the receipt of a cash payment without the
opportunity to convert this Debenture into shares of Common Stock. 

                    (i)      Rule
144 Hold Period. For purposes of Rule 144, it is intended, understood and
acknowledged that the Common Stock issuable upon Conversion of this Debenture
shall be deemed to have been acquired at the time the Debenture was originally
issued. Moreover, it is intended, understood and acknowledged that the holding
period for the Common Stock issuable upon Conversion of this Debenture shall be
deemed to have commenced on the date this Debenture was originally issued.

                    (j)      Expenses
Shares. Upon execution of this Debenture the Company will deliver to the
Holder a total of 350,000 shares of common stock in the capital of the Company
in payment of the Holder’s expenses of this transaction. These shares are fully
earned upon the execution of this Debenture and shall constitute “restricted
securities” as such term is defined in Rule 144(a)(3) under the Securities Act
of 1933 and the certificate representing these shares shall bear a restrictive
legend in the form set out in section 3(e).

33 

                    (k)      Notice
of Corporate Events. Except as otherwise provided in this Debenture,
the Holder of this Debenture shall have no rights as a Holder of Common Stock
unless and only to the extent that it converts this Debenture into Common Stock.
The Company shall provide the Holder with prior notification of any meeting of
the Company's shareholders (and copies of proxy materials and other information
sent to shareholders). In the event the Company takes a record of its
shareholders for the purpose of determining shareholders who are entitled to receive
payment of any dividend or other distribution, any right to subscribe for,
purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to the Holder, at least thirty (30)
days prior to the consummation of the transaction or event, for the purpose of
such dividend, distribution, right or other event, and a brief statement
regarding the amount and character of such dividend, distribution, right or
other event to the extent known at such time. The Company shall make a public
announcement of any event requiring notification to the Holder hereunder
substantially simultaneously with the notification to the Holder in accordance
with the terms of this Section 15(k). 

                    (l)      Remedies.
The remedies provided in this Debenture shall be cumulative and in addition
to all other remedies available under this Debenture and the other Transaction
Documents, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the right of the
Holder right to pursue actual damages for any failure by the Company to comply
with the terms of this Debenture or the Transaction Documents. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Debenture will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Debenture or the other Transaction Documents,
that the Holder shall be entitled, in addition to all other available remedies
at law or in equity, to an injunction or injunctions restraining, preventing or
curing any breach of the Debenture and the other Transaction Documents and to
enforce specifically the terms and provisions thereof, without the necessity of
showing economic loss and without any bond or other security being required.

                    (m)      Construction;
Headings. This Debenture shall be deemed to be jointly drafted by the
Company and all the Purchasers and shall not be construed against any person as
the drafter hereof. The headings of this Debenture are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Debenture. 

          IN
WITNESS WHEREOF, Company has caused the Debenture to be signed in its name by
its duly authorized officer this ___ day of October, 2011. 

34 

Mabcure Inc. 

 

By:________________________
Print
Name: Dr. Amnon Gonenne 
Title: Chief Executive Officer 

35 

EXHIBIT A 

NOTICE OF CONVERSION 

(To be Executed by the Registered Holder in order to Convert
the Debenture) 

The undersigned hereby irrevocably
elects to convert $__________in principal amount of the Debenture (defined
herein) into shares of Common Stock, par value $0.001 per share ("Common
Stock"), of Mabcure Inc., a Nevada corporation (the
"Company"), plus: 

- $_________in accrued and unpaid
Interest Payments, plus -

- $_________in other Required Cash
Payments (specify):
_____________
______________________________________________________
.

all according to the conditions of the convertible Debenture of
the Company dated as of October 20, 2011 (the "Debenture"), as of the
date written below. If securities 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. No fee will be
charged to the Holder for any Conversion, except for transfer taxes, if any. By
submitting this Notice of Conversion, the Holder certifies that the issuance of
the number of shares of Common Stock requested hereby will not result in a
violation of the Beneficial Ownership Limitation. 

          The
Company shall electronically transmit the Common Stock issuable pursuant to this
Notice of Conversion to the account of the undersigned or its nominee with DTC
through its Deposit Withdrawal Agent Commission system ("DWAC Transfer").

Name of DTC Prime
Broker:______________________________
Account
Number:________________________________________

In lieu of receiving shares of Common
Stock issuable pursuant to this Notice of Conversion by way of a DWAC Transfer,
the undersigned hereby requests that the Company issue a certificate or
certificates for the number of shares of Common Stock set forth above (which
numbers are based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto: 

Name:
_________________________________________________

Address:
_______________________________________________

36 

The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
Conversion of the Debenture shall be made pursuant to registration of the securities under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an
exemption from registration under the Act. 

(i) Date of
Conversion:_______________________________
Applicable Conversion
Price:________________________
Number of Shares of Common
______________________
Stock to be Issued Pursuant to (i):
___________________
Conversion of the
Debenture:_______________________

(ii) Conversion of accrued and unpaid
Interest Payments, in accrued and unpaid Liquidated Damages, and/or other
Required Cash
Payments:
______________________________________________________________.

Signature: ______________________________________________________
Name:
_________________________________________________________
Address:
_______________________________________________________

Upon Conversion of the Debenture in accordance with the terms
thereof, the Holder shall not be required to physically surrender the Debenture
(or evidence of loss, theft or destruction thereof) to the Company unless all of
the Debenture is converted, in which case such Holder shall deliver the
Debenture being converted to the Company promptly following the Conversion Date
at issue. The Company shall issue and deliver shares of Common Stock to an
overnight courier not later than the third Business Days following receipt of
the Notice of Conversion with respect to the Debenture(s) to be converted, and
shall make payments pursuant to the Debenture for the number of Business Days
such issuance and delivery is late. 

37

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