Document:

EXHIBIT 4.3

        NEITHER THIS DEBENTURE NOR THE  SECURITIES  INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE  COMMISSION OR
THE  SECURITIES  COMMISSION  OF ANY STATE IN  RELIANCE  UPON AN  EXEMPTION  FROM
REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
ACT"),  AND,  ACCORDINGLY,  MAY NOT BE OFFERED  OR SOLD  EXCEPT  PURSUANT  TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR PURSUANT TO AN
AVAILABLE  EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF THE  SECURITIES  ACT AND IN ACCORDANCE  WITH  APPLICABLE  STATE
SECURITIES LAWS.

No. 1                                                          $350,000.00
                                                               May 11, 2000
                                  -------------
                        12% SECURED CONVERTIBLE DEBENTURE
                                 DUE MAY 1, 2001

        THIS DEBENTURE is issued by SITESTAR  CORPORATION,  a Nevada corporation
having a  principal  place of business at 16133  Ventura  Boulevard,  Suite 635,
Encino, CA 91436 (the "Company"), and is designated as the Company's 12% Secured
Convertible Debentures, due May 1, 2001 (the "Debentures").

        FOR  VALUE  RECEIVED,  the  Company  promises  to pay to NEW  MILLENNIUM
CAPITAL  PARTNERS  II,  LLC,  or its  registered  assigns  (the  "Holder"),  the
principal sum of Three Hundred Fifty Thousand and no/100  ($350,000),  on May 1,
2001 or such  earlier  date as the  Debentures  are  required or permitted to be
repaid as provided  hereunder (the  "Maturity  Date") and to pay interest to the
Holder  on  such  principal  sum at the  rate  of 12% per  annum,  payable  on a
quarterly basis on March 31, June 30,  September 30 and December 31 of each year
while such Debentures are outstanding  (each an "Interest  Payment Date") and on
each Conversion Date (as defined herein) for such principal  amount,  commencing
on the earlier to occur of a Conversion Date for such principal  amount and June
30, 2000,  in cash or shares of Common Stock (as defined in Section 7).  Subject
to the terms  and  conditions  herein,  the  decision  whether  to pay  interest
hereunder  in Common  Stock or cash shall be at the  discretion  of the Company.
Interest shall accrue daily commencing on the Original Issue Date (as defined in
Section 7) until payment in full of the principal sum, together with all accrued
and unpaid  interest and other amounts which may become due hereunder,  has been
made.  Any  interest not paid on any  Interest  Payment  Date shall  continue to
accrue and shall be due and payable upon conversion of the Debentures.  Interest
hereunder  will be paid to the  Person  (as  defined in Section 7) in whose name
this   Debenture  is  registered  on  the  records  of  the  Company   regarding
registration and transfers of Debentures (the "Debenture Register"). All overdue
accrued and unpaid interest shall entail a late fee at the rate of 15% per annum
(to accrue  daily,  from the date such  interest  is due  hereunder  through and
including the date of payment),  payable in cash. Not less than ten (10) Trading
Days (as defined in Section 7) prior to an Interest  Payment  Date,  the Company
shall  provide the Holder  notice of its  intention  to pay  interest in cash or
shares of Common  Stock  (the  Company  may  indicate  in such  notice  that the
election  contained  in such  notice  shall  continue  for later  periods  until
revised). If interest is paid in shares of Common Stock, the number of shares of
Common Stock issuable on account of such interest shall equal the cash amount of
such interest on such Interest  Payment Date divided by the Conversion Price (as
defined  below) on such date.  Notwithstanding  anything to  contrary  set forth
herein,  for purposes of  determining  the number of shares of Common Stock that
are issuable as payment of interest hereunder, the Conversion Price shall not be
subject to any Floor to which the Conversion Price would otherwise be subject.

                                       1
<PAGE>

        Notwithstanding  anything to the contrary  contained herein, the Company
may not issue  shares of Common  Stock in payment of interest  on the  principal
amount if:

               (i) the number of shares of Common Stock at the time  authorized,
unissued  and  unreserved  for  all  purposes,  or held as  treasury  stock,  is
insufficient to pay interest hereunder in shares of Common Stock;

               (ii) after the Interest Effectiveness Date (as defined in Section
7) such  shares (x) are not  registered  for  resale  pursuant  to an  effective
Underlying Shares  Registration  Statement (as defined in Section 7) and (y) may
not be sold  without  volume  restrictions  pursuant to Rule 144(k)  promulgated
under the  Securities Act (as defined in Section 7), as determined by counsel to
the Company  pursuant to a written  opinion  letter,  addressed to the Company's
transfer agent in the form and substance acceptable to the applicable Holder and
such  transfer  agent (if the Company is permitted and elects to pay interest in
shares  of  Common   Stock  under  this  clause  (ii)  prior  to  the   Interest
Effectiveness  Date and thereafter an Underlying Shares  Registration  Statement
shall be declared  effective  by the  Commission  (as defined in Section 7), the
Company shall,  within three (3) Trading Days after the date of such declaration
of effectiveness,  exchange such shares for shares of Common Stock that are free
of restrictive legends of any kind)

               (iii)  such  shares are not listed or quoted on either the Nasdaq
National  Market  ("NASDAQ") or on the New York Stock  Exchange,  American Stock
Exchange  or  the  Nasdaq  SmallCap  Market  or  OTC  Bulletin  Board  (each,  a
"Subsequent Market");

               (iv)  the Company  has  failed to timely  satisfy its  conversion
obligations hereunder; or

               (v) the  issuance of such shares  would  result in a violation of
Section 4(a)(ii)(A).

        This Debenture is subject to the following additional provisions:

               Section 1. This Debenture is exchangeable  for an equal aggregate
principal  amount  of  Debentures  of  different  authorized  denominations,  as
requested by the Holder  surrendering  the same. No service  charge will be made
for such registration of transfer or exchange.

              Section 2. Prior to due presentment to the Company for transfer of
this  Debenture,  the  Company and any agent of the Company may treat the Person
(as defined in Section 7) in whose name this Debenture is duly registered on the
Debenture  Register as the owner hereof for the purpose of receiving  payment as
herein  provided and for all other  purposes,  whether or not this  Debenture is
overdue,  and neither the Company nor any such agent shall be affected by notice
to the contrary.

                                       2
<PAGE>

               Section 3.     Events of Default.

               (a) "Event of Default",  wherever  used herein,  means any one of
the following  events  (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,  decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

               (i) any default in the payment of the principal  of,  interest on
          or liquidated damages in respect of, this Debenture, free of any claim
          of subordination  except in accordance with a subordination  agreement
          executed  by the  Holder,  as and when the same  shall  become due and
          payable (whether on the applicable Interest Payment Date, a Conversion
          Date or the Maturity Date or by acceleration or otherwise);

               (ii) the  Company  shall fail to  observe  or  perform  any other
          covenant,  agreement or warranty contained in, or otherwise commit any
          breach  of  any  of,  this  Debenture,  the  Purchase  Agreement,  the
          Registration  Rights  Agreement  (as  defined  in  Section  7) or  the
          Security  Agreements  (as defined in Section  7), and such  failure or
          breach shall not have been  remedied  within 30 days after the date on
          which notice of such failure or breach shall have been given;

               (iii) the Company or any of its subsidiaries  shall commence,  or
          there shall be commenced  against the Company or any such subsidiary a
          case under any  applicable  bankruptcy  or  insolvency  laws as now or
          hereafter in effect or any successor thereto, or the Company commences
          any other proceeding under any reorganization, arrangement, adjustment
          of debt, relief of debtors, dissolution,  insolvency or liquidation or
          similar law of any  jurisdiction  whether now or  hereafter  in effect
          relating  to the  Company  or  any  subsidiary  thereof  or  there  is
          commenced  against  the  Company or any  subsidiary  thereof  any such
          bankruptcy,  insolvency or other proceeding which remains  undismissed
          for a period of 60 days; or the Company or any  subsidiary  thereof is
          adjudicated  insolvent  or  bankrupt;  or any order of relief or other
          order approving any such case or proceeding is entered; or the Company
          or any subsidiary  thereof suffers any appointment of any custodian or
          the  like  for it or  any  substantial  part  of  its  property  which
          continues  undischarged  or unstayed  for a period of 60 days;  or the
          Company or any subsidiary  thereof makes a general  assignment for the
          benefit of creditors; or the Company shall fail to pay, or shall state
          that it is  unable  to pay,  or  shall be  unable  to pay,  its  debts
          generally as they become due; or the Company or any subsidiary thereof
          shall  call a meeting  of its  creditors  with a view to  arranging  a
          composition,  adjustment or restructuring of its debts; or the Company
          or any subsidiary  thereof shall by any act or failure to act indicate
          its consent to,  approval of or  acquiescence in any of the foregoing;
          or any  corporate  or other  action  is taken  by the  Company  or any
          subsidiary thereof for the purpose of effecting any of the foregoing;

                                       3
<PAGE>

               (iv) the Company  shall default in any of its  obligations  under
          any mortgage, credit agreement or other facility,  indenture agreement
          or other instrument under which there may be issued, or by which there
          may be secured or  evidenced  any  indebtedness  of the  Company in an
          amount  exceeding  ten  thousand  dollars   ($10,000),   whether  such
          indebtedness now exists or shall hereafter be created and such default
          shall result in such  indebtedness  becoming or being declared due and
          payable prior to the date on which it would  otherwise  become due and
          payable;

               (v) the Common Stock shall be delisted  from either the NASDAQ or
          a Subsequent  Market or shall be suspended  from trading on the NASDAQ
          without  resuming  trading  and/or  being  relisted  thereon  or  on a
          Subsequent  Market or having such suspension  lifted,  as the case may
          be, within two (2) days;

               (vi)  the  Company  shall  be a party to any  Change  of  Control
          Transaction  (as defined in Section 7), shall agree to sell or dispose
          all or in  excess  of 50% of its  assets  in one or more  transactions
          (whether  or not  such  sale  would  constitute  a Change  of  Control
          Transaction),  or shall  redeem or  repurchase  more than a de minimis
          number of shares of Common  Stock or other  equity  securities  of the
          Company (other than  redemptions  of Underlying  Shares (as defined in
          Section 7));

               (vii) an Underlying Shares Registration  Statement shall not have
          been declared effective by the Commission on or prior to the 120th day
          after the date hereof (the "Effectiveness Date").

               (viii) if, during the Effectiveness  Period, the effectiveness of
          the Underlying Shares Registration Statement lapses for any reason for
          more than an  aggregate  of five (5)  Trading  Days (which need not be
          consecutive  days),  or the Holder  shall not be  permitted  to resell
          Registrable   Securities  under  the  Underlying  Shares  Registration
          Statement  for more than an  aggregate of five (5) Trading Days (which
          need not be consecutive days);

               (ix) an Event (as hereinafter  defined) shall not have been cured
          to the  satisfaction  of the Holder prior to the  expiration of thirty
          (30) days from the Event  Date (as  defined  below)  relating  thereto
          (other than an Event resulting from a failure of an Underlying  Shares
          Registration  Statement to be declared  effective by the Commission on
          or prior to the Effectiveness  Date, which shall be covered by Section
          3(a)(vii));

                                       4
<PAGE>

               (xi)  the   Company   shall   fail  for  any  reason  to  deliver
          certificates  to a  Holder  prior  to the  tenth  (10th)  day  after a
          Conversion  Date pursuant to Section 4(b) or the Company shall provide
          notice to the Holder, including by way of public announcement,  at any
          time, of its intention not to comply with requests for  conversions of
          any Debentures in accordance with the terms hereof;

               (xii)  the  Company  shall  fail for any  reason to  deliver  the
          payment  in cash  pursuant  to a Buy-In  within  seven (7) days  after
          notice is deemed delivered hereunder;

               (xiii) the  Company  shall  issue any  shares of Common  Stock or
          Common Stock  Equivalents (as defined herein) in connection with or to
          any  present  or  future  lender or  creditor  of the  Company  or any
          subsidiary thereof;

               (xiv) the Company shall agree to pay or settle any  litigation or
          claim  for an  amount  in stock or cash  that  exceeds  the  insurance
          coverage for such litigation or claim; or

               (xv) the Company shall  restructure  any material  portion of its
          present or future debt obligations or payables.

               (b) If any Event of Default  occurs and is  continuing,  the full
principal  amount of this  Debenture  (and,  at the Holder's  option,  all other
Debentures  then held by such Holder),  together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become,  immediately
due and payable in cash.  The aggregate  amount payable upon an Event of Default
shall be equal to the sum of (i) the  Optional  Prepayment  Price (as defined in
Section 7) plus (ii) the product of (A) the number of  Underlying  Shares issued
in respect of  conversions  hereunder  or as payment of interest  hereunder,  in
either case, within thirty (30) days of the date of a declaration of an Event of
Default  and then  held by the  Holder  and (B) the Per Share  Market  Value (as
defined  in  Section  7) on the  date  prepayment  is due or the  date  the full
prepayment  price is paid,  whichever is greater.  Interest  shall accrue on the
prepayment amount hereunder from the seventh day after such amount is due (being
the date of an Event of Default)  through the date of prepayment in full thereof
at the rate of 15% per annum. All Debentures and Underlying Shares for which the
full repayment price hereunder shall have been paid in accordance herewith shall
be promptly  surrendered  to or as directed by the Company.  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  declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment  shall affect any subsequent  Event of Default or impair
any right consequent thereon.

                                       5
<PAGE>

               Section 4.    Conversion.

               (a) (i) Conversion at Option of Holder.  This Debenture  shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any  time and  from  time to time,  after  the  Original  Issue  Date
(subject to the limitations on conversion set forth in Section 4(a)(ii) hereof).
The number of shares of Common Stock issuable upon a conversion  hereunder shall
be determined by dividing the outstanding  principal amount of this Debenture to
be converted,  plus all accrued but unpaid interest  thereon,  by the Conversion
Price.  The Holder shall effect  conversions by surrendering  the Debentures (or
such  portions  thereof) to be  converted,  together with the form of conversion
notice attached hereto as Exhibit A (a "Conversion Notice") to the Company. Each
Conversion  Notice  shall  specify  the  principal  amount of  Debentures  to be
converted and the date on which such  conversion  is to be effected,  which date
may not be prior to the date  such  Conversion  Notice  is  deemed  to have been
delivered hereunder (a "Conversion Date"). If no Conversion Date is specified in
a Conversion  Notice, the Conversion Date shall be the date that such Conversion
Notice is deemed delivered  hereunder.  Subject to Section 4(b), each Conversion
Notice, once given, shall be irrevocable.  If the Holder is converting less than
all of the principal  amount  represented  by the  Debenture(s)  tendered by the
Holder  with the  Conversion  Notice,  or if a  conversion  hereunder  cannot be
effected in full for any reason,  the Company shall honor such conversion to the
extent  permissible  hereunder and shall promptly deliver to such Holder (in the
manner and within the time set forth in Section  4(b)) a new  Debenture for such
principal amount as has not been converted.

               (ii) Certain Conversion Restrictions

        (A)(1) A Holder may not convert  Debentures or receive  shares of Common
Stock as payment of interest  hereunder to the extent such conversion or receipt
of such interest payment would result in the Holder, together with any affiliate
thereof,  beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act (as defined in Section 7) and the rules promulgated thereunder)
in excess of 4.999% of the then issued and  outstanding  shares of Common Stock,
including  shares  issuable upon  conversion of, and payment of interest on, the
Debentures  held by such Holder after  application  of this Section.  The Holder
shall  have  the  sole  authority  and  obligation  to  determine   whether  the
restriction  contained in this Section applies and to the extent that the Holder
determines  that  the  limitation   contained  in  this  Section  applies,   the
determination  of which  portion  of the  principal  amount  of  Debentures  are
convertible  shall be in the sole  discretion of the Holder.  The  provisions of
this  Section  may be waived by a Holder  (but only as to itself  and not to any
other  Holder)  upon not less than 5 days  prior  notice to the  Company.  Other
Holders shall be unaffected by any such waiver.

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<PAGE>

          (2) A Holder may  not convert  Debentures or receive  shares of Common
Stock as payment of interest  hereunder to the extent such conversion or receipt
of such interest payment would result in the Holder, together with any affiliate
thereof,  beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules  promulgated  thereunder)  in excess of 9.999% of
the then  issued  and  outstanding  shares of  Common  Stock,  including  shares
issuable upon  conversion of, and payment of interest on, the Debentures held by
such Holder after  application  of this Section.  The Holder shall have the sole
authority and obligation to determine whether the restriction  contained in this
Section applies and to the extent that the Holder determines that the limitation
contained in this Section  applies,  the  determination  of which portion of the
principal  amount of Debentures are convertible  shall be in the sole discretion
of the Holder.  The  provisions  of this  Section may be waived by a Holder (but
only as to itself and not to any other  Holder) upon not less than 15 days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.

        (B)  If the Common  Stock is then  listed  for  trading on the NASDAQ or
the Nasdaq  SmallCap  Market and the Company has not  obtained  the  Shareholder
Approval  (as  defined  below),  then the Company may not issue in excess of the
Issuable  Maximum  (as  defined  below)  number of shares of Common  Stock  upon
conversions of Debentures or as payment of interest  thereon in shares of Common
Stock,  which  number  shall be  subject  to  adjustment  pursuant  to  Sections
4(c)(ii),  (iii),  (v), (vi) and (x). The Issuable Maximum equals 19.999% of the
number of shares of Common Stock outstanding immediately prior to the closing of
transactions set forth in the Purchase Agreement.  If on any Conversion Date (A)
the  Common  Stock is listed for  trading  on the NASDAQ or the Nasdaq  SmallCap
Market,  (B) the  Conversion  Price  then in effect  is such that the  aggregate
number of shares of Common Stock that would then be issuable upon  conversion in
full of all then  outstanding  Debentures and as payment of interest  thereon in
shares of Common  Stock,  together  with any shares of Common  Stock  previously
issued upon conversion of Debentures and as payment of interest  thereon,  would
exceed Issuable Maximum,  and (C) the Company shall not have previously obtained
the  vote of  shareholders  (the  "Shareholder  Approval"),  if  any,  as may be
required by the applicable  rules and regulations of the Nasdaq Stock Market (or
any  successor  entity)  applicable  to approve the issuance of shares of Common
Stock in excess of the Issuable Maximum  pursuant to the terms hereof,  then the
Company  shall issue to the Holder so requesting a conversion a number of shares
of Common Stock equal to the Issuable Maximum and, with respect to the remainder
of the  principal  amount of  Debentures  then held by such  Holder  for which a
conversion in accordance  with the Conversion  Price would result in an issuance
of shares  of  Common  Stock in excess  of the  Issuable  Maximum  (the  "Excess
Principal"),  the converting Holder shall have the option to require the Company
to either (1) use its best efforts to obtain the Shareholder Approval applicable
to such  issuance  as soon as is  possible,  but in any event not later than the
75th day after  such  request,  or (2) pay cash to the  converting  Holder in an
amount equal to the OptionalPrepayment  Amount for the Excess Principal.  If the
Company  fails to pay the  OptionalPrepayment  Amount in full  pursuant  to this
Section, the Company will pay interest thereon at a rate of 15% per annum to the
converting  Holder,  accruing daily from the Conversion  Date until such amount,
plus all such interest thereon, is paid in full.

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<PAGE>

               (b)  (i)  Not  later  than  three  (3)  Trading  Days  after  any
Conversion  Date,  the Company will deliver to the Holder (i) a  certificate  or
certificates which shall be free of restrictive legends and trading restrictions
representing  the  number  of shares of Common  Stock  being  acquired  upon the
conversion  of  Debentures  (subject  to the  limitations  set forth in  Section
4(a)(ii)  hereof),  (ii) Debentures in a principal amount equal to the principal
amount of Debentures not converted,  (iii) a bank check in the amount of accrued
and unpaid  interest  (if the  Company has elected or is required to pay accrued
interest  in  cash),  and  (iv) if the  Company  has  elected  and is  permitted
hereunder to pay accrued interest in shares of Common Stock, certificates, which
shall be free of restrictive legends and trading  restrictions (other than those
required by Section 3.1 (b) of the Purchase Agreement), representing such shares
of Common  Stock;  provided,  that the Company  shall not be  obligated to issue
certificates  evidencing the shares of Common Stock issuable upon  conversion of
the principal amount of Debentures until Debentures are delivered for conversion
to the Company,  or the Holder  notifies the Company that such  Debentures  have
been lost, stolen or destroyed and provides a bond (or other adequate  security)
reasonably  satisfactory  to the Company to indemnify  the Company from any loss
incurred by it in connection  therewith.  The Company shall, upon request of the
Holder,  if  available,  use its best  efforts to  deliver  any  certificate  or
certificates  required  to be  delivered  by  the  Company  under  this  Section
electronically  through the Depository Trust Corporation or another  established
clearing  corporation  performing  similar  functions.  If in  the  case  of any
Conversion  Notice such  certificate  or  certificates,  including  for purposes
hereof,  any  shares of Common  Stock to be  issued  on the  Conversion  Date on
account of accrued but unpaid  interest  hereunder,  are not  delivered to or as
directed  by the  applicable  Holder by the third  (3rd)  Trading  Day after the
Conversion  Date,  the Holder shall be entitled by written notice to the Company
at any  time on or  before  its  receipt  of such  certificate  or  certificates
thereafter,  to  rescind  such  conversion,  in which  event the  Company  shall
immediately  return  the  certificates  representing  the  principal  amount  of
Debentures tendered for conversion.

        (ii) If the Company fails to deliver to the Holder such  certificate  or
certificates  pursuant to Section 4(b)(i),  including for purposes  hereof,  any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but  unpaid  interest  hereunder,  by the  third  (3rd)  Trading  Day  after the
Conversion  Date,  the Company shall pay to such Holder,  in cash, as liquidated
damages and not as a penalty, $1,000 for each Trading Day after such third (3rd)
Trading Day until such certificates are delivered.  Nothing herein shall limit a
Holder's  right to pursue actual  damages for the  Company's  failure to deliver
certificates  representing  shares of Common  Stock upon  conversion  within the
period  specified  herein  and such  Holder  shall  have the right to pursue all
remedies available to it 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 Holders  from  seeking to enforce  damages
pursuant to any other Section hereof or under  applicable law.  Further,  if the
Company  shall not have  delivered  any cash due in  respect of  conversions  of
Debentures  or as payment of  interest  thereon by the third  (3rd)  Trading Day
after the Conversion Date, the Holder may, by notice to the Company, require the
Company to issue shares of Common Stock  pursuant to Section  4(c),  except that
for such purpose the Conversion Price applicable  thereto shall be the lesser of
the Conversion Price on the Conversion Date and the Conversion Price on the date
of such Holder demand.  Any such shares will be subject to the provision of this
Section.

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<PAGE>

        (iii) In addition to any other rights  available  to the Holder,  if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4(b)(i), including for purposes hereof, any shares of Common Stock to
be issued on the  Conversion  Date on  account of  accrued  but unpaid  interest
hereunder,  by the third (3rd)  Trading Day after the  Conversion  Date,  and if
after such third  (3rd)  Trading  Day the Holder  purchases  (in an open  market
transaction or otherwise)  Common Stock to deliver in  satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated receiving upon
such  conversion  (a  "Buy-In"),  then the Company  shall (A) pay in cash to the
Holder (in addition to any  remedies  available to or elected by the Holder) the
amount by which (x) the  Holder's  total  purchase  price  (including  brokerage
commisions, if any) for the Common Stock so purchased exceeds (y) the product of
(1) the aggregate number of shares of Common Stock that such Holder  anticipated
receiving from the conversion at issue multiplied by (2) the market price of the
Common Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder,  either reissue  Debentures in principal amount
equal the principal amount of the attempted  conversion or deliver to the Holder
the number of shares of Common Stock that would have been issued had the Company
timely  complied  with its delivery  requirements  under  Section  4(b)(i).  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 Debentures
with respect to which the market price of the  Underlying  Shares on the date of
conversion 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.  Notwithstanding  anything  contained herein to
the contrary,  if a Holder  requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates  hereunder and the Company
timely pays in full such payment,  the Company shall not be required to pay such
Holder liquidated  damages under Section 4(b)(ii) in respect of the certificates
resulting in such Buy-In.

               (c) (i)The conversion price (the "Conversion Price") in effect on
any  Conversion  Date shall be the lesser of (A) $.70 (the  "Initial  Conversion
Price")  and (B) 60 % of the  average of the three (3)  lowest Per Share  Market
Value during the twenty (20) Trading Days  immediately  preceding the applicable
Conversion  Date,  provided,  that such twenty (20)  Trading Day period shall be
extended  for the number of Trading Days during such period in which (A) trading
in the Common Stock is  suspended by the NASDAQ or a Subsequent  Market on which
the Common Stock is then listed, or (B) after the date declared effective by the
Commission,  the Underlying Shares Registration  Statement is not effective,  or
(C) after the date declared effective by the Commission, the Prospectus included
in the Underlying  Shares  Registration  Statement may not be used by the Holder
for the resale of Underlying  Shares. If (a) an Underlying  Shares  Registration
Statement  is not filed on or prior to the  Filing  Date (as  defined  under the
Registration  Rights  Agreement)  (if the Company files such  Underlying  Shares
Registration  Statement  without  affording the Holder the opportunity to review
and comment on the same as required by Section 3(a) of the  Registration  Rights

                                       9
<PAGE>

Agreement,  the Company shall not be deemed to have  satisfied this clause (a)),
or (b) the Company fails to file with the Commission a request for  acceleration
in accordance with Rule 12d1-2  promulgated  under the Exchange Act, within five
(5) days of the  date  that the  Company  is  notified  (orally  or in  writing,
whichever is earlier) by the Commission that an Underlying  Shares  Registration
Statement will not be "reviewed," or not subject to further  review,  or (c) the
Underlying  Shares  Registration  Statement  is not  declared  effective  by the
Commission on or prior to the Effectiveness  Date, or (d) such Underlying Shares
Registration  Statement is filed with and declared  effective by the  Commission
but thereafter  ceases to be effective as to all  Registrable  Securities at any
time prior to the  expiration  of the  Effectiveness  Period (as  defined in the
Registration Rights Agreement),  without being succeeded within ten (10) days by
an amendment to such Underlying Shares Registration Statement or by a subsequent
Underlying Shares  Registration  Statement filed with and declared  effective by
the  Commission,  or (e) the Common  Stock shall be delisted or  suspended  from
trading  on the  NASDAQ or on any  Subsequent  Market  for more  than  three (3)
Business Days (which need not be consecutive days), (f) the conversion rights of
the Holders are suspended  for any reason or (g) an amendment to the  Underlying
Shares  Registration  Statement is not filed by the Company with the  Commission
within  ten (10)  days of the  Commission's  notifying  the  Company  that  such
amendment is required in order for the Underlying Shares Registration  Statement
to be declared  effective  (any such failure or breach  being  referred to as an
"Event," and for purposes of clauses (a),  (c), (f) the date on which such Event
occurs, or for purposes of clause (b) the date on which such five (5) day period
is  exceeded,  or for  purposes  of  clauses  (d) and (g) the date which such 10
day-period  is  exceeded,  or for  purposes of clause (e) the date on which such
three (3) Business  Day-period is exceeded,  being referred to as "Event Date"),
then, on the Event Date and on each monthly  anniversary thereof until such time
as the  applicable  Event is cured,  the Company shall pay to the Holder 2.5% of
the aggregate  principal  amount of the Debentures then  outstanding in cash, as
liquidated  damages and not as penalty.  The  provisions of this Section are not
exclusive  and  shall  in no way  limit  the  Company's  obligations  under  the
Registration Rights Agreement.

        (ii)   If  the   Company,   at  any  time  while  any   Debentures   are
outstanding,  (a) shall pay a stock dividend or otherwise make a distribution or
distributions  on  shares  of its  Common  Stock or any  other  equity or equity
equivalent   securities  payable  in  shares  of  Common  Stock,  (b)  subdivide
outstanding  shares of Common Stock into a larger number of shares,  (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d) issue
by reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Initial Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock  (excluding
treasury  shares,  if any)  outstanding  before  such  event  and of  which  the
denominator shall be the number of shares of Common Stock outstanding after such
event.  Any  adjustment  made  pursuant to this Section  shall become  effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective  immediately
after  the  effective  date  in  the  case  of  a  subdivision,  combination  or
re-classification.

                                       10
<PAGE>

        (iii) If the Company,  at any time while any Debentures are outstanding,
shall issue rights,  options or warrants to all holders of Common Stock (and not
to Holders)  entitling them to subscribe for or purchase  shares of Common Stock
at a price per share less than the Per Share  Market  Value at the  record  date
mentioned  below,  then the Initial  Conversion  Price shall be  multiplied by a
fraction,  of which the denominator  shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants  plus the number of  additional  shares of Common  Stock
offered for  subscription  or purchase,  and of which the numerator shall be the
number  of  shares of the  Common  Stock  (excluding  treasury  shares,  if any)
outstanding  on the date of issuance of such rights or warrants  plus the number
of shares which the  aggregate  offering  price of the total number of shares so
offered would purchase at such Per Share Market Value.  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. However, upon the expiration of any
such  right,  option or  warrant  to  purchase  shares of the  Common  Stock the
issuance of which  resulted in an  adjustment  in the Initial  Conversion  Price
pursuant to this Section,  if any such right, option or warrant shall expire and
shall not have been exercised,  the Initial  Conversion Price shall  immediately
upon  such  expiration  be  recomputed  and  effective   immediately  upon  such
expiration  be increased  to the price which it would have been (but  reflecting
any other  adjustments  in the  Initial  Conversion  Price made  pursuant to the
provisions  of this Section  after the issuance of such rights or warrants)  had
the  adjustment of the Initial  Conversion  Price made upon the issuance of such
rights,  options or warrants been made on the basis of offering for subscription
or purchase  only that number of shares of the Common Stock  actually  purchased
upon the exercise of such rights, options or warrants actually exercised.

        (iv)    If the Company or any  subsidiary  thereof,  as applicable  with
respect  to Common  Stock  Equivalents  (as  defined  below),  at any time while
Debentures  are  outstanding,  shall  issue  shares of Common  Stock or  rights,
warrants,  options  or other  securities  or debt  that is  convertible  into or
exchangeable for shares of Common Stock ("Common Stock  Equivalents")  entitling
any Person to acquire  shares of Common Stock at a price per share less than the
Conversion  Price,  then the Conversion Price shall be multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately  prior to the issuance of such shares of Common Stock or such Common
Stock  Equivalents  plus the number of shares of Common Stock which the offering
price for such shares of Common Stock or Common Stock Equivalents would purchase
at the Conversion  Price,  and the  denominator of which shall be the sum of the
number of shares of Common Stock outstanding  immediately prior to such issuance
plus the number of shares of Common Stock so issued or issuable,  provided, that
for  purposes  hereof,  all  shares  of  Common  Stock  that are  issuable  upon
conversion,  exercise or exchange of Common  Stock  Equivalents  shall be deemed
outstanding  immediately  after the issuance of such Common  Stock  Equivalents.
Such  adjustment  shall be made  whenever  such shares of Common Stock or Common
Stock Equivalents are issued.

                                       11
<PAGE>

        (v) If the Company, at any time while Debentures are outstanding,  shall
distribute to all holders of Common Stock (and not to Holders)  evidences of its
indebtedness  or assets or rights or warrants to  subscribe  for or purchase any
security,  then  in each  such  case  the  Initial  Conversion  Price  at  which
Debentures  shall  thereafter be convertible  shall be determined by multiplying
the  Initial  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 Per  Share  Market  Value
determined  as of the record date  mentioned  above,  and of which the numerator
shall be such Per  Share  Market  Value 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 one  outstanding  share of the Common
Stock as determined by the Board of Directors in good faith; provided,  however,
that in the  event of a  distribution  exceeding  ten  percent  (10%) of the net
assets  of  the  Company,  if the  Holders  of a  majority  in  interest  of the
Debentures dispute such valuation, such fair market value shall be determined by
a nationally  recognized or major  regional  investment  banking firm or firm of
independent  certified public  accountants of recognized  standing (which may be
the firm that  regularly  examines the financial  statements of the Company) (an
"Appraiser")  selected in good faith by the holders of a majority in interest of
Debentures then  outstanding;  and provided,  further,  that the Company,  after
receipt of the determination by such Appraiser shall have the right to select an
additional  Appraiser,  in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser.  In either
case the adjustments  shall be described in a statement  provided to the Holders
of the portion of assets or evidences of  indebtedness  so  distributed  or such
subscription  rights  applicable to one share of Common Stock.  Such  adjustment
shall be made whenever any such  distribution is made and shall become effective
immediately after the record date mentioned above.

        (vi)   In  case  of any  reclassification  of the  Common  Stock  or any
compulsory  share exchange  pursuant to which the Common Stock is converted into
other securities,  cash or property, the Holders shall have the right thereafter
to, at their option, (A) convert the then outstanding principal amount, together
with all accrued but unpaid  interest and any other amounts then owing hereunder
in respect of this Debenture only into the shares of stock and other securities,
cash and property  receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange,  and the Holders of the
Debentures  shall  be  entitled  upon  such  event to  receive  such  amount  of
securities,  cash or property  as the shares of the Common  Stock of the Company
into which the then outstanding principal amount,  together with all accrued but
unpaid  interest and any other  amounts then owing  hereunder in respect of this
Debenture could have been converted  immediately prior to such  reclassification
or share  exchange would have been entitled or (B) require the Company to prepay
the  aggregate  of its  outstanding  principal  amount of  Debentures,  plus all
interest and other  amounts due and payable  thereon,  at a price  determined in
accordance with Section 3(b). The entire prepayment price shall be paid in cash.
This provision shall similarly  apply to successive  reclassifications  or share
exchanges.

                                       12
<PAGE>

        (vii)  All  calculations  under  this  Section  4  shall  be made to the
nearest 1/100th of a cent or share, as the case may be.

        (viii) Whenever  the Initial  Conversion  Price is adjusted  pursuant to
any of Section  4(c)(ii) - (v), the Company shall promptly mail to each Holder a
notice  setting forth the  Conversion  Price after such  adjustment  and setting
forth a brief statement of the facts requiring such adjustment.

        (ix)   If (A) the  Company  shall  declare  a  dividend  (or  any  other
distribution)  on the Common  Stock;  (B) the  Company  shall  declare a special
nonrecurring  cash  dividend on or a  redemption  of the Common  Stock;  (C) the
Company  shall  authorize the granting to all holders of the Common Stock rights
or warrants to  subscribe  for or  purchase  any shares of capital  stock of any
class or of any  rights;  (D) the  approval of any  stockholders  of the Company
shall be required in connection with any  reclassification  of the Common Stock,
any  consolidation  or  merger  to which  the  Company  is a party,  any sale or
transfer  of all or  substantially  all of the  assets  of the  Company,  of any
compulsory  share of exchange  whereby the Common Stock is converted  into other
securities,  cash or property;  (E) the Company shall authorize the voluntary or
involuntary  dissolution,  liquidation  or  winding  up of  the  affairs  of the
Company;  then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures,  and shall
cause to be mailed to the Holders at their last  addresses  as they shall appear
upon the stock  books of the  Company,  at least 20  calendar  days prior to the
applicable record or effective date hereinafter  specified, a notice stating (x)
the date on which a record  is to be taken  for the  purpose  of such  dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such  dividend,  distributions,   redemption,  rights  or  warrants  are  to  be
determined  or (y)  the  date on  which  such  reclassification,  consolidation,
merger,  sale,  transfer or share  exchange is expected to become  effective  or
close,  and the date as of which it is expected that holders of the Common Stock
of record  shall be entitled to exchange  their  shares of the Common  Stock for
securities,  cash or other  property  deliverable  upon  such  reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing  thereof
shall not affect the validity of the corporate  action  required to be specified
in such  notice.  Holders are entitled to convert  Debentures  during the 20-day
period  commencing  the date of such notice to the  effective  date of the event
triggering such notice.

                                       13
<PAGE>

        (x) In case of any (1) merger or  consolidation  of the Company  with or
into another Person that would  constitute a Change of Control  Transaction,  or
(2) sale by the  Company of more than  one-half of the assets of the Company (on
an as valued basis) in one or a series of related transactions, or (3) tender or
other offer or exchange  (whether by the Company or another Person)  pursuant to
which holders of Common Stock are  permitted to tender or exchange  their shares
for other securities,  stock, cash or property of the Company or another Person;
then a Holder  shall  have the  right to (A) if  permitted  under  Section  3(b)
hereof,  exercise its rights of  prepayment  under  Section 3(b) with respect to
such event,  (B) convert  its  aggregate  principal  amount of  Debentures  then
outstanding  into the shares of stock and other  securities,  cash and  property
receivable  upon or deemed to be held by holders of Common Stock  following such
merger, consolidation or sale, and such Holder shall be entitled upon such event
or series of  related  events to receive  such  amount of  securities,  cash and
property  as the shares of Common  Stock into  which  such  aggregate  principal
amount of Debentures could have been converted immediately prior to such merger,
consolidation or sales would have been entitled,  (C) in the case of a merger or
consolidation,  (x) require the surviving  entity to issue shares of convertible
preferred stock or convertible debentures with such aggregate stated value or in
such face amount, as the case may be, equal to the aggregate principal amount of
Debentures  then held by such Holder,  plus all accrued and unpaid  interest and
other amounts  owing  thereon,  which newly issued shares of preferred  stock or
debentures shall have terms identical  (including with respect to conversion) to
the terms of this Debenture  (except,  in the case of preferred stock, as may be
required  to  reflect  the  differences  between  equity  and debt) and shall be
entitled to all of the rights and privileges of a Holder of Debentures set forth
herein  and  the  agreements  pursuant  to  which  the  Debentures  were  issued
(including,  without  limitation,  as such  rights  relate  to the  acquisition,
transferability,  registration  and  listing  of  such  shares  of  stock  other
securities  issuable upon conversion  thereof),  and (y) simultaneously with the
issuance of such convertible  preferred stock or convertible  debentures,  shall
have the right to convert  such  instrument  only into shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger or  consolidation,  or (D) in the event of an
exchange or tender offer or other transaction contemplated by clause (3) of this
Section,  tender or exchange its aggregate  principal  amount of Debentures  for
such securities,  stock, cash and other property receivable upon or deemed to be
held by holders of Common Stock that have tendered or exchanged  their shares of
Common  Stock  following  such  tender or  exchange,  and such  Holder  shall be
entitled upon such exchange or tender to receive such amount of securities, cash
and property as the shares of Common Stock into which such  aggregate  principal
amount of  Debentures  could have been  converted  (taking into account all then
accrued and unpaid dividends) immediately prior to such tender or exchange would
have been  entitled as would have been  issued.  In the case of clause (C),  the
conversion price applicable for the newly issued shares of convertible preferred
stock or  convertible  debentures  shall be based upon the amount of securities,
cash and  property  that  each  share of  Common  Stock  would  receive  in such
transaction  and  the  Conversion  Price  in  effect  immediately  prior  to the
effectiveness  or  closing  date for  such  transaction.  The  terms of any such
merger, sale,  consolidation,  tender or exchange shall include such terms so as
continue to give the Holders of Debentures the right to receive the  securities,
cash and property set forth in this Section upon any  conversion  or  redemption
following such event.  This provision  shall  similarly apply to successive such
events.

                                       14
<PAGE>

               (d) The Company  covenants  that it will at all times reserve and
keep available out of its authorized and unissued  shares of Common Stock solely
for the purpose of issuance  upon  conversion of the  Debentures  and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other  actual  contingent  purchase  rights  of  persons  other  than the
Holders,  not less than such  number  of  shares  of the  Common  Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments  and  restrictions  of  Section  4(b))  upon the  conversion  of the
outstanding   principal  amount  of  the  Debentures  and  payment  of  interest
hereunder.  The Company  covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized,  issued and fully
paid,  nonassessable  and, if the Underlying Shares  Registration  Statement has
been declared effective under the Securities Act,  registered for public sale in
accordance with such Underlying Shares Registration Statement.

               (e) Upon a conversion hereunder the Company shall not be required
to issue  stock  certificates  representing  fractions  of shares of the  Common
Stock,  but may if  otherwise  permitted,  make a cash payment in respect of any
final  fraction of a share based on the Per Share Market Value at such time.  If
the Company  elects not, or is unable,  to make such a cash payment,  the Holder
shall be  entitled  to receive,  in lieu of the final  fraction of a share,  one
whole share of Common Stock.

               (f) The issuance of  certificates  for shares of the Common Stock
on  conversion  of the  Debentures  shall be made without  charge to the Holders
thereof  for any  documentary  stamp or  similar  taxes  that may be  payable in
respect of the issue or delivery of such certificate,  provided that the Company
shall not be  required  to pay any tax that may be  payable  in  respect  of any
transfer  involved in the  issuance and  delivery of any such  certificate  upon
conversion  in a name  other  than  that of the  Holder  of such  Debentures  so
converted  and the  Company  shall  not be  required  to issue or  deliver  such
certificates  unless or until the  person or  persons  requesting  the  issuance
thereof  shall  have paid to the  Company  the  amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.

               (g) Any and all notices or other  communications or deliveries to
be provided  by the  Holders of the  Debentures  hereunder,  including,  without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile,  sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid,  addressed to the Company,  at
16133 Ventura  Boulevard,  Suite 635, Encino,  CA 91436 (facsimile  number (818)
981-2658), attention Chief Executive Officer, or such other address or facsimile
number as the Company  may  specify  for such  purposes by notice to the Holders
delivered in accordance with this Section, with a copy to The N.I.R. Group, LLC,
155 First Street,  Suite B, Mineola, NY 11501(facsimile  number  (516)739-7115),
attention CSR. Any and all notices or other  communications  or deliveries to be
provided by the Company hereunder shall be in writing and delivered  personally,
by facsimile,  sent by a nationally recognized overnight courier service or sent

                                       15
<PAGE>

by certified or registered mail,  postage  prepaid,  addressed to each Holder of
the  Debentures  at the  facsimile  telephone  number or address of such  Holder
appearing on the books of the Company,  or if no such facsimile telephone number
or address appears, at the principal place of business of the holder. Any notice
or other  communication  or  deliveries  hereunder  shall be  deemed  given  and
effective  on the  earliest of (i) the date of  transmission,  if such notice or
communication  is delivered  via  facsimile at the  facsimile  telephone  number
specified in this Section prior to 8:00 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
8:00 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date,  (iii)  four days  after  deposit in the United  States
mail, (iv) the Business Day following the date of mailing, if send by nationally
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given.

               Section 5.   Optional Prepayment.

               (a) The  Company  shall have the right,  exercisable  at any time
upon  twenty  (20)  Trading  Days  prior  written  notice to the  Holders of the
Debentures to be prepaid and  accompanied  by any waiver  required by holders of
senior indebtedness of the Company for such prepayment (the "Optional Prepayment
Notice"),  to prepay, all or any portion of the outstanding  principal amount of
the  Debentures  which have not previously  been repaid or for which  Conversion
Notices have not previously been delivered.  The prepayment  price applicable to
such  prepayments  shall  equal the  Optional  Prepayment  Price (as  defined in
Section 7) and shall be paid in cash. Any such  prepayment  shall be free of any
claim of  subordination.  The  Holders  shall have the right to tender,  and the
Company shall honor, Conversion Notices delivered prior to the expiration of the
twentieth  (20th)  Trading  Day after  receipt  by the  Holders  of an  Optional
Prepayment Notice for such Debentures (the 20th Trading Day after receipt by the
Holders of an Optional  Prepayment Notice is referred to herein as the "Optional
Prepayment Date").

               (b) If any portion of the Optional  Prepayment Price shall not be
paid by the Company by the second  (2nd)  Business  Day  following  the Optional
Prepayment  Date,  the Optional  Prepayment  Price shall be increased by 15% per
annum (to accrue  daily) until paid (which  amount  shall be paid as  liquidated
damages  and not as a penalty).  In  addition,  if any  portion of the  optional
Prepayment   Price  remains  unpaid  through  the  expiration  of  the  Optional
Prepayment  Date,  the Holder  subject to such  prepayment  may elect by written
notice to the Company to either (x) demand  conversion  in  accordance  with the
formula  and the time period  therefor  set forth in Section 4 of any portion of
the principal amount of Debentures for which the Optional Prepayment Price, plus
accrued  liquidated  damages  thereof,  has not been paid in full  (the  "Unpaid
Prepayment  Principal  Amount"),  in which event the applicable Per Share Market
Value  shall be the  lower  of the Per  Share  Market  Value  calculated  on the
Optional  Prepayment  Date and the Per  Share  Market  Value as of the  Holder's
written  demand  for  conversion,  or (y)  invalidate  ab initio  such  optional

                                       16
<PAGE>

redemption,  notwithstanding  anything herein contained to the contrary.  If the
Holder elects option (x) above,  the Company shall within three (3) Trading Days
such election is deemed  delivered  hereunder to the Holder the shares of Common
Stock issuable upon conversion of the Unpaid Prepayment Principal Amount subject
to such conversion demand and otherwise  perform its obligations  hereunder with
respect  thereto;  or, if the Holder elects option (y) above,  the Company shall
promptly, and in any event not later than three (3) Trading Days from receipt of
notice of such election, return to the Holder new Debentures for the full Unpaid
Prepayment  Principal  Amount.  If, upon an election under option (x) above, the
Company fails to deliver the shares of Common Stock issuable upon  conversion of
the Unpaid Prepayment  Principal Amount within the time period set forth in this
Section,  the Company shall pay to the Holder in cash, as liquidated damages and
not as a penalty, $2,500 per day until the Company delivers such Common Stock to
the Holder.

               Section 6.  INTENTIONALLY OMITTED

               Section 7.  Definitions. For  the  purposes hereof, the following
terms shall have the following meanings:

               "Business Day" means any day except Saturday,  Sunday and any day
which shall be a legal  holiday or a day on which  banking  institutions  in the
State of New York or the State of California  are  authorized or required by law
or other government action to close.

               "Change of Control  Transaction"  means the  occurrence of any of
(i) an  acquisition  after the date hereof by an  individual  or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 33% of the voting securities of the Company,  (ii) a replacement of
more than one-half of the members of the Company's  board of directors  which is
not approved by those  individuals  who are members of the board of directors on
the date hereof in one or a series of related transactions,  (iii) the merger of
the  Company  with  or  into  another  entity,  consolidation  or sale of all or
substantially  all of the  assets of the  Company  in one or a series of related
transactions,  unless following such  transaction,  the holders of the Company's
securities  continue  to hold at least  33% of such  securities  following  such
transaction  or (iv) the  execution  by the Company of an agreement to which the
Company is a party or by which it is bound,  providing for any of the events set
forth above in (i), (ii) or (iii).

               "Commission" means the Securities and Exchange Commission.

               "Common  Stock" means the Class A Common Stock,  no par value per
share,  of the  Company  and stock of any other class into which such shares may
hereafter have been reclassified or changed.

               "Exchange Act"  means  the  Securities  Exchange  Act of 1934, as
amended.

                                       17
<PAGE>

               "Interest  Effectiveness  Date" means the earlier to occur of (x)
the Effectiveness  Date and (y) the date that an Underlying Shares  Registration
Statement is declared effective by the Commission.

               "Optional  Prepayment  Price" for any Debentures shall equal 120%
of principal  amount of  Debentures  to be prepaid,  plus all accrued and unpaid
interest thereon.

               "Original  Issue Date" shall mean the date of the first  issuance
of the  Debentures  regardless  of the number of transfers of any  Debenture and
regardless  of the number of  instruments  which may be issued to evidence  such
Debenture.

               "Per Share  Market  Value" means on any  particular  date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or a Subsequent  Market,
the  closing  bid  price  for a share of  Common  Stock in the  over-the-counter
market,  as reported by the National  Quotation  Bureau  Incorporated or similar
organization or agency  succeeding to its functions of reporting  prices) at the
close of business on such date,  or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices),  then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the  Holder,  or (d) if the Common  Stock is not then  publicly  traded the fair
market value of a share of Common Stock as determined  by an Appraiser  selected
in good faith by the Holders of a majority in interest of the  principal  amount
of Debentures then outstanding.

               "Person"  means a  corporation,  an  association,  a partnership,
organization,  a business, an individual,  a government or political subdivision
thereof or a governmental agency.

               "Purchase  Agreement"  means the  Secured  Convertible  Debenture
Purchase Agreement, dated as of the Original Issue Date, between the Company and
the original Holder of Debentures,  as amended,  modified or  supplemented  from
time to time in accordance with its terms.

               "Registration  Rights  Agreement" means the  Registration  Rights
Agreement,  dated as of the  Original  Issue  Date,  between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.

               "Securities Act" means the Securities Act of 1933, as amended.

               "Security Agreements" means the Security Agreement,  of even date
herewith  between the Company and the original Holder of Debentures,  as amended
modified or supplemented from time to time in accordance with its terms.

                                       18
<PAGE>

               "Trading Day" means (a) a day on which the Common Stock is traded
on the NASDAQ or on such  Subsequent  Market on which the  Common  Stock is then
listed or quoted,  or (b) if the  Common  Stock is not listed on the NASDAQ or a
Subsequent   Market,  a  day  on  which  the  Common  Stock  is  traded  in  the
over-the-counter  market,  as reported by the OTC Bulletin  Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin  Board, a day on which the Common
Stock is  quoted in the  over-the-counter  market as  reported  by the  National
Quotation Bureau Incorporated (or any similar  organization or agency succeeding
its functions of reporting prices);  provided,  however,  that in the event that
the  Common  Stock is not  listed or  quoted  as set  forth in (a),  (b) and (c)
hereof, then Trading Day shall mean any day except Saturday,  Sunday and any day
which shall be a legal  holiday or a day on which  banking  institutions  in the
State of New York are authorized or required by law or other  government  action
to close.

               "Underlying  Shares"  means the shares of Common  Stock  issuable
upon  conversion of Debentures or as payment of interest in accordance  with the
terms hereof.

               "Underlying  Shares  Registration  Statement" means  registration
statement  meeting  the  requirements  set  forth  in  the  Registration  Rights
Agreement,  covering among other things the resale of the Underlying  Shares and
naming the Holder as a "selling stockholder" thereunder.

               Section 8. Except as expressly  provided herein,  no provision of
this  Debenture  shall alter or impair the  obligation of the Company,  which is
absolute and  unconditional,  to pay the principal of,  interest and  liquidated
damages (if any) on, this  Debenture at the time,  place,  and rate,  and in the
coin or currency,  herein  prescribed.  This Debenture is a direct obligation of
the Company.  This Debenture  ranks pari passu with all other  Debentures now or
hereafter  issued  under  the  terms  set forth  herein.  The  Company  may only
voluntarily  prepay  the  outstanding  principal  amount  on the  Debentures  in
accordance with Section 5 hereof.

               Section 9. This Debenture  shall not entitle the Holder to any of
the rights of a stockholder of the Company,  including without  limitation,  the
right to vote, to receive dividends and other  distributions,  or to receive any
notice of, or to attend,  meetings of stockholders  or any other  proceedings of
the Company,  unless and to the extent  converted into shares of Common Stock in
accordance with the terms hereof.

               Section 10. If this Debenture shall be mutilated, lost, stolen or
destroyed,  the Company shall execute and deliver,  in exchange and substitution
for  and  upon  cancellation  of a  mutilated  Debenture,  or in  lieu  of or in
substitution for a lost, stolen or destroyed debenture,  a new Debenture for the
principal amount of this Debenture so mutilated,  lost,  stolen or destroyed but
only upon  receipt  of  evidence  of such  loss,  theft or  destruction  of such
Debenture,  and of the  ownership  hereof,  and  indemnity,  if  requested,  all
reasonably satisfactory to the Company.

                                       19
<PAGE>

               Section 11. This Debenture  shall be governed by and construed in
accordance  with the laws of the State of New  York,  without  giving  effect to
conflicts of laws thereof. The Company and the Holders hereby irrevocably submit
to the exclusive  jurisdiction  of the state and federal  courts  sitting in the
County of Nassau, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction  contemplated  hereby or discussed herein,  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, or that such suit, action or proceeding is improper. Each of the
Company and the Holder hereby irrevocably waives personal service of process and
consents  to process  being  served in any such suit,  action or  proceeding  by
receiving  a copy  thereof  sent to the  Company  at the  address  in effect for
notices  to it  under  this  instrument  and  agrees  that  such  service  shall
constitute good and sufficient  service of process and notice  thereof.  Nothing
contained  herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.

               Section  12. Any waiver by the  Company or the Holder of a breach
of any provision of this Debenture  shall not operate as or be construed to be a
waiver  of any  other  breach of such  provision  or of any  breach of any other
provision of this Debenture.  The failure of the Company or the Holder to insist
upon strict  adherence to any term of this  Debenture  on one or more  occasions
shall not be  considered a waiver or deprive that party of the right  thereafter
to  insist  upon  strict  adherence  to  that  term  or any  other  term of this
Debenture. Any waiver must be in writing.

               Section  13.  If any  provision  of this  Debenture  is  invalid,
illegal or unenforceable,  the balance of this Debenture shall remain in effect,
and if any provision is  inapplicable  to any person or  circumstance,  it shall
nevertheless remain applicable to all other persons and circumstances.

               Section 14.  Whenever any payment or other  obligation  hereunder
shall be due on a day other than a Business  Day,  such payment shall be made on
the next succeeding Business Day.

               Section 15. The payment  obligations under this Debenture and the
obligations  of the Company to the Holder  arising upon the conversion of all or
any of the  Debentures  in  accordance  with the  provisions  hereof are secured
pursuant to the Security Agreements.

                          [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                                    SIGNATURE PAGE FOLLOWS]

                                       20
<PAGE>

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

No.1

                                   SITESTAR CORPORATION

                                        /s/ Clinton J. Sallee
                                   By:________________________________
                                      Name: Clinton J. Sallee
                                      Title:  President & CEO

Attest:

By:___________________________
   Name:
   Title:

                                       21

<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

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

The undersigned  hereby elects to convert the attached  Debenture into shares of
Class  A  Common  Stock,  no par  value  per  share  (the  "Common  Stock"),  of
------------------- (the  "Company")  according to the conditions  hereof, as of
the date written below. If shares are to be issued in the name of a person other
than  undersigned,  the  undersigned  will pay all transfer  taxes  payable with
respect  thereto and is delivering  herewith such  certificates  and opinions as
reasonably  requested  by the Company in  accordance  therewith.  No fee will be
charged to the holder for any  conversion,  except for such transfer  taxes,  if
any.

Conversion calculations:

                                ----------------------------------------------
                                Date to Effect Conversion

                                ----------------------------------------------
                                Principal Amount of Debentures to be Converted

                                ----------------------------------------------
                                Number of shares of Common Stock to be Issued

                                ----------------------------------------------
                                Applicable Conversion Price

                                ----------------------------------------------
                                Signature

                                -----------------------------------------------
                                Name

                                ----------------------------------------------
                                Address

                                       22EXHIBIT 4.4

        NEITHER THIS DEBENTURE NOR THE  SECURITIES  INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE  COMMISSION OR
THE  SECURITIES  COMMISSION  OF ANY STATE IN  RELIANCE  UPON AN  EXEMPTION  FROM
REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
ACT"),  AND,  ACCORDINGLY,  MAY NOT BE OFFERED  OR SOLD  EXCEPT  PURSUANT  TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR PURSUANT TO AN
AVAILABLE  EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF THE  SECURITIES  ACT AND IN ACCORDANCE  WITH  APPLICABLE  STATE
SECURITIES LAWS.

No. 2                                                               $150,000.00
                                                                   May 11, 2000

                                  -------------
                        12% SECURED CONVERTIBLE DEBENTURE
                                 DUE MAY 1, 2001

        THIS DEBENTURE is issued by SITESTAR  CORPORATION,  a Nevada corporation
having a  principal  place of business at 16133  Ventura  Boulevard,  Suite 635,
Encino, CA 91436 (the "Company"), and is designated as the Company's 12% Secured
Convertible Debentures, due May 1, 2001 (the "Debentures").

        FOR VALUE RECEIVED, the Company promises to pay to AJW PARTNERS, LLC, or
its registered  assigns (the  "Holder"),  the principal sum of One Hundred Fifty
Thousand  and  no/100  ($150,000),  on May 1, 2001 or such  earlier  date as the
Debentures  are required or permitted  to be repaid as provided  hereunder  (the
"Maturity  Date") and to pay interest to the Holder on such principal sum at the
rate of 12% per  annum,  payable  on a  quarterly  basis on March  31,  June 30,
September 30 and December 31 of each year while such  Debentures are outstanding
(each an  "Interest  Payment  Date")  and on each  Conversion  Date (as  defined
herein)  for such  principal  amount,  commencing  on the  earlier to occur of a
Conversion  Date for such principal  amount and June 30, 2000, in cash or shares
of Common Stock (as defined in Section 7).  Subject to the terms and  conditions
herein,  the decision whether to pay interest  hereunder in Common Stock or cash
shall  be at  the  discretion  of  the  Company.  Interest  shall  accrue  daily
commencing on the Original Issue Date (as defined in Section 7) until payment in
full of the principal  sum,  together  with all accrued and unpaid  interest and
other amounts which may become due  hereunder,  has been made.  Any interest not
paid on any Interest  Payment Date shall continue to accrue and shall be due and
payable upon  conversion of the Debentures.  Interest  hereunder will be paid to
the Person (as defined in Section 7) in whose name this  Debenture is registered
on the records of the Company regarding registration and transfers of Debentures
(the "Debenture Register"). All overdue accrued and unpaid interest shall entail
a late fee at the rate of 15% per annum  (to  accrue  daily,  from the date such
interest is due hereunder through and including the date of payment), payable in

                                        1
<PAGE>

cash.  Not less than ten (10) Trading Days (as defined in Section 7) prior to an
Interest  Payment  Date,  the Company  shall  provide  the Holder  notice of its
intention  to pay  interest in cash or shares of Common  Stock (the  Company may
indicate  in such  notice  that the  election  contained  in such  notice  shall
continue  for later  periods  until  revised).  If interest is paid in shares of
Common Stock,  the number of shares of Common Stock  issuable on account of such
interest  shall equal the cash amount of such interest on such Interest  Payment
Date  divided  by  the  Conversion  Price  (as  defined  below)  on  such  date.
Notwithstanding   anything  to  contrary  set  forth  herein,  for  purposes  of
determining the number of shares of Common Stock that are issuable as payment of
interest  hereunder,  the Conversion  Price shall not be subject to any Floor to
which the Conversion Price would otherwise be subject.

        Notwithstanding  anything to the contrary  contained herein, the Company
may not issue  shares of Common  Stock in payment of interest  on the  principal
amount if:

               (i) the number of shares of Common Stock at the time  authorized,
unissued  and  unreserved  for  all  purposes,  or held as  treasury  stock,  is
insufficient to pay interest hereunder in shares of Common Stock;

               (ii) after the Interest Effectiveness Date (as defined in Section
7) such  shares (x) are not  registered  for  resale  pursuant  to an  effective
Underlying Shares  Registration  Statement (as defined in Section 7) and (y) may
not be sold  without  volume  restrictions  pursuant to Rule 144(k)  promulgated
under the  Securities Act (as defined in Section 7), as determined by counsel to
the Company  pursuant to a written  opinion  letter,  addressed to the Company's
transfer agent in the form and substance acceptable to the applicable Holder and
such  transfer  agent (if the Company is permitted and elects to pay interest in
shares  of  Common   Stock  under  this  clause  (ii)  prior  to  the   Interest
Effectiveness  Date and thereafter an Underlying Shares  Registration  Statement
shall be declared  effective  by the  Commission  (as defined in Section 7), the
Company shall,  within three (3) Trading Days after the date of such declaration
of effectiveness,  exchange such shares for shares of Common Stock that are free
of restrictive legends of any kind)

               (iii)  such  shares are not listed or quoted on either the Nasdaq
National  Market  ("NASDAQ") or on the New York Stock  Exchange,  American Stock
Exchange  or  the  Nasdaq  SmallCap  Market  or  OTC  Bulletin  Board  (each,  a
"Subsequent Market");

               (iv) the  Company  has  failed to timely  satisfy  its conversion
obligations hereunder; or

               (v) the  issuance of such shares  would  result in a violation of
Section 4(a)(ii)(A).

        This Debenture is subject to the following additional provisions:

                                        2
<PAGE>

               Section 1. This Debenture is exchangeable  for an equal aggregate
principal  amount  of  Debentures  of  different  authorized  denominations,  as
requested by the Holder  surrendering  the same. No service  charge will be made
for such registration of transfer or exchange.

               Section 2 Prior to due presentment to the Company for transfer of
this  Debenture,  the  Company and any agent of the Company may treat the Person
(as defined in Section 7) in whose name this Debenture is duly registered on the
Debenture  Register as the owner hereof for the purpose of receiving  payment as
herein  provided and for all other  purposes,  whether or not this  Debenture is
overdue,  and neither the Company nor any such agent shall be affected by notice
to the contrary.

               Section 3     Events of Default.

               (a) "Event of Default",  wherever  used herein,  means any one of
the following  events  (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,  decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

               (i) any default in the payment of the principal  of,  interest on
        or liquidated  damages in respect of, this Debenture,  free of any claim
        of  subordination  except in accordance with a  subordination  agreement
        executed  by the  Holder,  as and  when the same  shall  become  due and
        payable  (whether on the applicable  Interest Payment Date, a Conversion
        Date or the Maturity Date or by acceleration or otherwise);

               (ii) the  Company  shall fail to  observe  or  perform  any other
        covenant,  agreement or warranty  contained in, or otherwise  commit any
        breach  of  any  of,  this  Debenture,   the  Purchase  Agreement,   the
        Registration  Rights Agreement (as defined in Section 7) or the Security
        Agreements  (as defined in Section 7), and such  failure or breach shall
        not have been remedied  within 30 days after the date on which notice of
        such failure or breach shall have been given;

               (iii) the Company or any of its subsidiaries  shall commence,  or
        there shall be  commenced  against the Company or any such  subsidiary a
        case  under  any  applicable  bankruptcy  or  insolvency  laws as now or
        hereafter in effect or any successor  thereto,  or the Company commences
        any other proceeding under any reorganization,  arrangement,  adjustment
        of debt,  relief of debtors,  dissolution,  insolvency or liquidation or
        similar  law of any  jurisdiction  whether  now or  hereafter  in effect
        relating to the Company or any subsidiary  thereof or there is commenced
        against  the  Company or any  subsidiary  thereof  any such  bankruptcy,
        insolvency or other proceeding which remains undismissed for a period of
        60  days;  or the  Company  or any  subsidiary  thereof  is  adjudicated
        insolvent or bankrupt;  or any order of relief or other order  approving
        any such case or proceeding is entered; or the Company or any subsidiary

                                        3
<PAGE>

        thereof  suffers any  appointment of any custodian or the like for it or
        any  substantial  part of its property which  continues  undischarged or
        unstayed  for a period  of 60 days;  or the  Company  or any  subsidiary
        thereof makes a general assignment for the benefit of creditors;  or the
        Company  shall fail to pay,  or shall state that it is unable to pay, or
        shall be unable to pay,  its debts  generally as they become due; or the
        Company or any subsidiary  thereof shall call a meeting of its creditors
        with a view to arranging a composition,  adjustment or  restructuring of
        its debts; or the Company or any subsidiary  thereof shall by any act or
        failure to act indicate its consent to,  approval of or  acquiescence in
        any of the  foregoing;  or any corporate or other action is taken by the
        Company or any  subsidiary  thereof for the purpose of effecting  any of
        the foregoing;

               (iv) the Company  shall default in any of its  obligations  under
        any mortgage, credit agreement or other facility, indenture agreement or
        other instrument under which there may be issued,  or by which there may
        be secured or  evidenced  any  indebtedness  of the Company in an amount
        exceeding ten thousand dollars ($10,000),  whether such indebtedness now
        exists or shall  hereafter be created and such  default  shall result in
        such  indebtedness  becoming or being  declared due and payable prior to
        the date on which it would otherwise become due and payable;

               (v) the Common Stock shall be delisted  from either the NASDAQ or
        a  Subsequent  Market or shall be  suspended  from trading on the NASDAQ
        without   resuming  trading  and/or  being  relisted  thereon  or  on  a
        Subsequent Market or having such suspension  lifted, as the case may be,
        within two (2) days;

               (vi)  the  Company  shall  be a party to any  Change  of  Control
        Transaction  (as defined in Section  7),  shall agree to sell or dispose
        all  or in  excess  of 50% of its  assets  in one or  more  transactions
        (whether  or  not  such  sale  would  constitute  a  Change  of  Control
        Transaction),  or shall  redeem or  repurchase  more  than a de  minimis
        number  of  shares of Common  Stock or other  equity  securities  of the
        Company  (other than  redemptions  of  Underlying  Shares (as defined in
        Section 7));

               (ix) an Underlying Shares  Registration  Statement shall not have
        been  declared  effective by the Commission on or prior to the 120th day
        after the date hereof (the "Effectiveness Date").

               (x) if, during the Effectiveness Period, the effectiveness of the
        Underlying   Shares   Registration  Statement  lapses for any reason for
        more than an  aggregate  of five (5)  Trading  Days (which need not be
        consecutive  days),  or the Holder  shall not be  permitted  to resell
        Registrable   Securities  under  the  Underlying  Shares  Registration
        Statement  for more than an  aggregate of five (5) Trading Days (which
        need not be consecutive days);

                                        4
<PAGE>

               (ix) an Event (as hereinafter  defined) shall not have been cured
        to the satisfaction of the Holder prior to the expiration of thirty (30)
        days from the Event Date (as defined below) relating thereto (other than
        an Event resulting from a failure of an Underlying  Shares  Registration
        Statement to be declared  effective by the Commission on or prior to the
        Effectiveness Date, which shall be covered by Section 3(a)(vii));

               (xi)  the   Company   shall   fail  for  any  reason  to  deliver
        certificates  to a  Holder  prior  to  the  tenth  (10th)  day  after  a
        Conversion  Date  pursuant to Section 4(b) or the Company  shall provide
        notice to the Holder,  including by way of public  announcement,  at any
        time, of its intention  not to comply with requests for  conversions  of
        any Debentures in accordance with the terms hereof;

               (xii)  the  Company  shall  fail for any  reason to  deliver  the
        payment  in  cash  pursuant  to a  Buy-In  within  seven (7) days  after
        notice is deemed delivered hereunder;

               (xiii) the  Company  shall  issue any  shares of Common  Stock or
        Common Stock  Equivalents  (as defined  herein) in connection with or to
        any  present  or  future  lender  or  creditor  of  the  Company  or any
        subsidiary thereof;

               (xiv) the Company shall agree to pay or settle any  litigation or
        claim for an amount in stock or cash that exceeds the insurance coverage
        for such litigation or claim; or

               (xv) the Company shall  restructure  any material  portion of its
        present or future debt obligations or payables.

               (b) If any Event of Default  occurs and is  continuing,  the full
principal  amount of this  Debenture  (and,  at the Holder's  option,  all other
Debentures  then held by such Holder),  together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become,  immediately
due and payable in cash.  The aggregate  amount payable upon an Event of Default
shall be equal to the sum of (i) the  Optional  Prepayment  Price (as defined in
Section 7) plus (ii) the product of (A) the number of  Underlying  Shares issued
in respect of  conversions  hereunder  or as payment of interest  hereunder,  in
either case, within thirty (30) days of the date of a declaration of an Event of
Default  and then  held by the  Holder  and (B) the Per Share  Market  Value (as
defined  in  Section  7) on the  date  prepayment  is due or the  date  the full
prepayment  price is paid,  whichever is greater.  Interest  shall accrue on the
prepayment amount hereunder from the seventh day after such amount is due (being
the date of an Event of Default)  through the date of prepayment in full thereof
at the rate of 15% per annum. All Debentures and Underlying Shares for which the
full repayment price hereunder shall have been paid in accordance herewith shall
be promptly  surrendered  to or as directed by the Company.  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  declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment  shall affect any subsequent  Event of Default or impair
any right consequent thereon.

                                        5
<PAGE>

               Section 4.    Conversion.

               (a) (i) Conversion at Option of Holder.  This Debenture  shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any  time and  from  time to time,  after  the  Original  Issue  Date
(subject to the limitations on conversion set forth in Section 4(a)(ii) hereof).
The number of shares of Common Stock issuable upon a conversion  hereunder shall
be determined by dividing the outstanding  principal amount of this Debenture to
be converted,  plus all accrued but unpaid interest  thereon,  by the Conversion
Price.  The Holder shall effect  conversions by surrendering  the Debentures (or
such  portions  thereof) to be  converted,  together with the form of conversion
notice attached hereto as Exhibit A (a "Conversion Notice") to the Company. Each
Conversion  Notice  shall  specify  the  principal  amount of  Debentures  to be
converted and the date on which such  conversion  is to be effected,  which date
may not be prior to the date  such  Conversion  Notice  is  deemed  to have been
delivered hereunder (a "Conversion Date"). If no Conversion Date is specified in
a Conversion  Notice, the Conversion Date shall be the date that such Conversion
Notice is deemed delivered  hereunder.  Subject to Section 4(b), each Conversion
Notice, once given, shall be irrevocable.  If the Holder is converting less than
all of the principal  amount  represented  by the  Debenture(s)  tendered by the
Holder  with the  Conversion  Notice,  or if a  conversion  hereunder  cannot be
effected in full for any reason,  the Company shall honor such conversion to the
extent  permissible  hereunder and shall promptly deliver to such Holder (in the
manner and within the time set forth in Section  4(b)) a new  Debenture for such
principal amount as has not been converted.

                      (ii)  Certain Conversion Restrictions

        (A)(1) A Holder may not convert  Debentures or receive  shares of Common
Stock as payment of interest  hereunder to the extent such conversion or receipt
of such interest payment would result in the Holder, together with any affiliate
thereof,  beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act (as defined in Section 7) and the rules promulgated thereunder)
in excess of 4.999% of the then issued and  outstanding  shares of Common Stock,
including  shares  issuable upon  conversion of, and payment of interest on, the
Debentures  held by such Holder after  application  of this Section.  The Holder
shall  have  the  sole  authority  and  obligation  to  determine   whether  the
restriction  contained in this Section applies and to the extent that the Holder
determines  that  the  limitation   contained  in  this  Section  applies,   the
determination  of which  portion  of the  principal  amount  of  Debentures  are
convertible  shall be in the sole  discretion of the Holder.  The  provisions of
this  Section  may be waived by a Holder  (but only as to itself  and not to any
other  Holder)  upon not less than 5 days  prior  notice to the  Company.  Other
Holders shall be unaffected by any such waiver.

                                       6
<PAGE>

               (2) A Holder may not  convert  Debentures  or  receive  shares of
Common Stock as payment of interest  hereunder to the extent such  conversion or
receipt of such interest  payment would result in the Holder,  together with any
affiliate thereof, beneficially owning (as determined in accordance with Section
13(d) of the Exchange  Act and the rules  promulgated  thereunder)  in excess of
9.999% of the then  issued and  outstanding  shares of Common  Stock,  including
shares  issuable upon  conversion of, and payment of interest on, the Debentures
held by such Holder after application of this Section. The Holder shall have the
sole authority and obligation to determine whether the restriction  contained in
this  Section  applies  and to the extent  that the Holder  determines  that the
limitation contained in this Section applies, the determination of which portion
of the  principal  amount of  Debentures  are  convertible  shall be in the sole
discretion  of the Holder.  The  provisions  of this  Section may be waived by a
Holder (but only as to itself and not to any other Holder) upon not less than 15
days prior notice to the Company.  Other Holders shall be unaffected by any such
waiver.

                      (B) If the Common  Stock is then listed for trading on the
NASDAQ or the  Nasdaq  SmallCap  Market and the  Company  has not  obtained  the
Shareholder  Approval  (as  defined  below),  then the  Company may not issue in
excess of the  Issuable  Maximum (as defined  below)  number of shares of Common
Stock upon conversions of Debentures or as payment of interest thereon in shares
of Common  Stock,  which  number  shall be subject  to  adjustment  pursuant  to
Sections 4(c)(ii), (iii), (v), (vi) and (x). The Issuable Maximum equals 19.999%
of the number of shares of Common  Stock  outstanding  immediately  prior to the
closing  of  transactions  set  forth  in  the  Purchase  Agreement.  If on  any
Conversion  Date (A) the Common Stock is listed for trading on the NASDAQ or the
Nasdaq SmallCap Market, (B) the Conversion Price then in effect is such that the
aggregate  number of shares of Common  Stock that would  then be  issuable  upon
conversion in full of all then outstanding Debentures and as payment of interest
thereon in shares of Common  Stock,  together  with any  shares of Common  Stock
previously  issued  upon  conversion  of  Debentures  and as payment of interest
thereon,  would  exceed  Issuable  Maximum,  and (C) the Company  shall not have
previously  obtained the vote of shareholders (the "Shareholder  Approval"),  if
any, as may be required by the  applicable  rules and  regulations of the Nasdaq
Stock Market (or any  successor  entity)  applicable  to approve the issuance of
shares of Common Stock in excess of the Issuable  Maximum  pursuant to the terms
hereof,  then the Company shall issue to the Holder so requesting a conversion a
number of shares of Common Stock equal to the Issuable Maximum and, with respect
to the remainder of the principal  amount of Debentures then held by such Holder
for which a conversion in accordance  with the Conversion  Price would result in
an issuance of shares of Common  Stock in excess of the  Issuable  Maximum  (the
"Excess Principal"),  the converting Holder shall have the option to require the
Company to either (1) use its best  efforts to obtain the  Shareholder  Approval
applicable to such  issuance as soon as is possible,  but in any event not later
than the 75th day after such request,  or (2) pay cash to the converting  Holder
in an amount equal to the OptionalPrepayment Amount for the Excess Principal. If
the Company fails to pay the OptionalPrepayment  Amount in full pursuant to this
Section, the Company will pay interest thereon at a rate of 15% per annum to the
converting  Holder,  accruing daily from the Conversion  Date until such amount,
plus all such interest thereon, is paid in full.

                                       7
<PAGE>

               (b)  (i)  Not  later  than  three  (3)  Trading  Days  after  any
Conversion  Date,  the Company will deliver to the Holder (i) a  certificate  or
certificates which shall be free of restrictive legends and trading restrictions
representing  the  number  of shares of Common  Stock  being  acquired  upon the
conversion  of  Debentures  (subject  to the  limitations  set forth in  Section
4(a)(ii)  hereof),  (ii) Debentures in a principal amount equal to the principal
amount of Debentures not converted,  (iii) a bank check in the amount of accrued
and unpaid  interest  (if the  Company has elected or is required to pay accrued
interest  in  cash),  and  (iv) if the  Company  has  elected  and is  permitted
hereunder to pay accrued interest in shares of Common Stock, certificates, which
shall be free of restrictive legends and trading  restrictions (other than those
required by Section 3.1 (b) of the Purchase Agreement), representing such shares
of Common  Stock;  provided,  that the Company  shall not be  obligated to issue
certificates  evidencing the shares of Common Stock issuable upon  conversion of
the principal amount of Debentures until Debentures are delivered for conversion
to the Company,  or the Holder  notifies the Company that such  Debentures  have
been lost, stolen or destroyed and provides a bond (or other adequate  security)
reasonably  satisfactory  to the Company to indemnify  the Company from any loss
incurred by it in connection  therewith.  The Company shall, upon request of the
Holder,  if  available,  use its best  efforts to  deliver  any  certificate  or
certificates  required  to be  delivered  by  the  Company  under  this  Section
electronically  through the Depository Trust Corporation or another  established
clearing  corporation  performing  similar  functions.  If in  the  case  of any
Conversion  Notice such  certificate  or  certificates,  including  for purposes
hereof,  any  shares of Common  Stock to be  issued  on the  Conversion  Date on
account of accrued but unpaid  interest  hereunder,  are not  delivered to or as
directed  by the  applicable  Holder by the third  (3rd)  Trading  Day after the
Conversion  Date,  the Holder shall be entitled by written notice to the Company
at any  time on or  before  its  receipt  of such  certificate  or  certificates
thereafter,  to  rescind  such  conversion,  in which  event the  Company  shall
immediately  return  the  certificates  representing  the  principal  amount  of
Debentures tendered for conversion.

        (ii) If the Company fails to deliver to the Holder such  certificate  or
certificates  pursuant to Section 4(b)(i),  including for purposes  hereof,  any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but  unpaid  interest  hereunder,  by the  third  (3rd)  Trading  Day  after the
Conversion  Date,  the Company shall pay to such Holder,  in cash, as liquidated
damages and not as a penalty, $1,000 for each Trading Day after such third (3rd)
Trading Day until such certificates are delivered.  Nothing herein shall limit a
Holder's  right to pursue actual  damages for the  Company's  failure to deliver
certificates  representing  shares of Common  Stock upon  conversion  within the
period  specified  herein  and such  Holder  shall  have the right to pursue all
remedies available to it 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 Holders  from  seeking to enforce  damages
pursuant to any other Section hereof or under  applicable law.  Further,  if the
Company  shall not have  delivered  any cash due in  respect of  conversions  of
Debentures  or as payment of  interest  thereon by the third  (3rd)  Trading Day
after the Conversion Date, the Holder may, by notice to the Company, require the

                                       8
<PAGE>

Company to issue shares of Common Stock  pursuant to Section  4(c),  except that
for such purpose the Conversion Price applicable  thereto shall be the lesser of
the Conversion Price on the Conversion Date and the Conversion Price on the date
of such Holder demand.  Any such shares will be subject to the provision of this
Section.

        (iii) In addition to any other rights  available  to the Holder,  if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4(b)(i), including for purposes hereof, any shares of Common Stock to
be issued on the  Conversion  Date on  account of  accrued  but unpaid  interest
hereunder,  by the third (3rd)  Trading Day after the  Conversion  Date,  and if
after such third  (3rd)  Trading  Day the Holder  purchases  (in an open  market
transaction or otherwise)  Common Stock to deliver in  satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated receiving upon
such  conversion  (a  "Buy-In"),  then the Company  shall (A) pay in cash to the
Holder (in addition to any  remedies  available to or elected by the Holder) the
amount by which (x) the  Holder's  total  purchase  price  (including  brokerage
commisions, if any) for the Common Stock so purchased exceeds (y) the product of
(1) the aggregate number of shares of Common Stock that such Holder  anticipated
receiving from the conversion at issue multiplied by (2) the market price of the
Common Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder,  either reissue  Debentures in principal amount
equal the principal amount of the attempted  conversion or deliver to the Holder
the number of shares of Common Stock that would have been issued had the Company
timely  complied  with its delivery  requirements  under  Section  4(b)(i).  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 Debentures
with respect to which the market price of the  Underlying  Shares on the date of
conversion 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.  Notwithstanding  anything  contained herein to
the contrary,  if a Holder  requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates  hereunder and the Company
timely pays in full such payment,  the Company shall not be required to pay such
Holder liquidated  damages under Section 4(b)(ii) in respect of the certificates
resulting in such Buy-In.

               (c) (i)The conversion price (the "Conversion Price") in effect on
any  Conversion  Date shall be the lesser of (A) $.70 (the  "Initial  Conversion
Price")  and (B) 60 % of the  average of the three (3)  lowest Per Share  Market
Value during the twenty (20) Trading Days  immediately  preceding the applicable
Conversion  Date,  provided,  that such twenty (20)  Trading Day period shall be
extended  for the number of Trading Days during such period in which (A) trading
in the Common Stock is  suspended by the NASDAQ or a Subsequent  Market on which
the Common Stock is then listed, or (B) after the date declared effective by the
Commission,  the Underlying Shares Registration  Statement is not effective,  or
(C) after the date declared effective by the Commission, the Prospectus included
in the Underlying  Shares  Registration  Statement may not be used by the Holder

                                       9
<PAGE>

for the resale of Underlying  Shares. If (a) an Underlying  Shares  Registration
Statement  is not filed on or prior to the  Filing  Date (as  defined  under the
Registration  Rights  Agreement)  (if the Company files such  Underlying  Shares
Registration  Statement  without  affording the Holder the opportunity to review
and comment on the same as required by Section 3(a) of the  Registration  Rights
Agreement,  the Company shall not be deemed to have  satisfied this clause (a)),
or (b) the Company fails to file with the Commission a request for  acceleration
in accordance with Rule 12d1-2  promulgated  under the Exchange Act, within five
(5) days of the  date  that the  Company  is  notified  (orally  or in  writing,
whichever is earlier) by the Commission that an Underlying  Shares  Registration
Statement will not be "reviewed," or not subject to further  review,  or (c) the
Underlying  Shares  Registration  Statement  is not  declared  effective  by the
Commission on or prior to the Effectiveness  Date, or (d) such Underlying Shares
Registration  Statement is filed with and declared  effective by the  Commission
but thereafter  ceases to be effective as to all  Registrable  Securities at any
time prior to the  expiration  of the  Effectiveness  Period (as  defined in the
Registration Rights Agreement),  without being succeeded within ten (10) days by
an amendment to such Underlying Shares Registration Statement or by a subsequent
Underlying Shares  Registration  Statement filed with and declared  effective by
the  Commission,  or (e) the Common  Stock shall be delisted or  suspended  from
trading  on the  NASDAQ or on any  Subsequent  Market  for more  than  three (3)
Business Days (which need not be consecutive days), (f) the conversion rights of
the Holders are suspended  for any reason or (g) an amendment to the  Underlying
Shares  Registration  Statement is not filed by the Company with the  Commission
within  ten (10)  days of the  Commission's  notifying  the  Company  that  such
amendment is required in order for the Underlying Shares Registration  Statement
to be declared  effective  (any such failure or breach  being  referred to as an
"Event," and for purposes of clauses (a),  (c), (f) the date on which such Event
occurs, or for purposes of clause (b) the date on which such five (5) day period
is  exceeded,  or for  purposes  of  clauses  (d) and (g) the date which such 10
day-period  is  exceeded,  or for  purposes of clause (e) the date on which such
three (3) Business  Day-period is exceeded,  being referred to as "Event Date"),
then, on the Event Date and on each monthly  anniversary thereof until such time
as the  applicable  Event is cured,  the Company shall pay to the Holder 2.5% of
the aggregate  principal  amount of the Debentures then  outstanding in cash, as
liquidated  damages and not as penalty.  The  provisions of this Section are not
exclusive  and  shall  in no way  limit  the  Company's  obligations  under  the
Registration Rights Agreement.

        (ii)   If  the   Company,   at  any  time  while  any   Debentures   are
outstanding,  (a) shall pay a stock dividend or otherwise make a distribution or
distributions  on  shares  of its  Common  Stock or any  other  equity or equity
equivalent   securities  payable  in  shares  of  Common  Stock,  (b)  subdivide
outstanding  shares of Common Stock into a larger number of shares,  (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d) issue
by reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Initial Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock  (excluding
treasury  shares,  if any)  outstanding  before  such  event  and of  which  the
denominator shall be the number of shares of Common Stock outstanding after such
event.  Any  adjustment  made  pursuant to this Section  shall become  effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective  immediately
after  the  effective  date  in  the  case  of  a  subdivision,  combination  or
re-classification.

                                       10
<PAGE>

        (iii) If the Company,  at any time while any Debentures are outstanding,
shall issue rights,  options or warrants to all holders of Common Stock (and not
to Holders)  entitling them to subscribe for or purchase  shares of Common Stock
at a price per share less than the Per Share  Market  Value at the  record  date
mentioned  below,  then the Initial  Conversion  Price shall be  multiplied by a
fraction,  of which the denominator  shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants  plus the number of  additional  shares of Common  Stock
offered for  subscription  or purchase,  and of which the numerator shall be the
number  of  shares of the  Common  Stock  (excluding  treasury  shares,  if any)
outstanding  on the date of issuance of such rights or warrants  plus the number
of shares which the  aggregate  offering  price of the total number of shares so
offered would purchase at such Per Share Market Value.  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. However, upon the expiration of any
such  right,  option or  warrant  to  purchase  shares of the  Common  Stock the
issuance of which  resulted in an  adjustment  in the Initial  Conversion  Price
pursuant to this Section,  if any such right, option or warrant shall expire and
shall not have been exercised,  the Initial  Conversion Price shall  immediately
upon  such  expiration  be  recomputed  and  effective   immediately  upon  such
expiration  be increased  to the price which it would have been (but  reflecting
any other  adjustments  in the  Initial  Conversion  Price made  pursuant to the
provisions  of this Section  after the issuance of such rights or warrants)  had
the  adjustment of the Initial  Conversion  Price made upon the issuance of such
rights,  options or warrants been made on the basis of offering for subscription
or purchase  only that number of shares of the Common Stock  actually  purchased
upon the exercise of such rights, options or warrants actually exercised.

        (iv)    If the Company or any  subsidiary  thereof,  as applicable  with
respect  to Common  Stock  Equivalents  (as  defined  below),  at any time while
Debentures  are  outstanding,  shall  issue  shares of Common  Stock or  rights,
warrants,  options  or other  securities  or debt  that is  convertible  into or
exchangeable for shares of Common Stock ("Common Stock  Equivalents")  entitling
any Person to acquire  shares of Common Stock at a price per share less than the
Conversion  Price,  then the Conversion Price shall be multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately  prior to the issuance of such shares of Common Stock or such Common
Stock  Equivalents  plus the number of shares of Common Stock which the offering
price for such shares of Common Stock or Common Stock Equivalents would purchase
at the Conversion  Price,  and the  denominator of which shall be the sum of the
number of shares of Common Stock outstanding  immediately prior to such issuance
plus the number of shares of Common Stock so issued or issuable,  provided, that
for  purposes  hereof,  all  shares  of  Common  Stock  that are  issuable  upon
conversion,  exercise or exchange of Common  Stock  Equivalents  shall be deemed
outstanding  immediately  after the issuance of such Common  Stock  Equivalents.
Such  adjustment  shall be made  whenever  such shares of Common Stock or Common
Stock Equivalents are issued.

                                       11
<PAGE>

        (v) If the Company, at any time while Debentures are outstanding,  shall
distribute to all holders of Common Stock (and not to Holders)  evidences of its
indebtedness  or assets or rights or warrants to  subscribe  for or purchase any
security,  then  in each  such  case  the  Initial  Conversion  Price  at  which
Debentures  shall  thereafter be convertible  shall be determined by multiplying
the  Initial  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 Per  Share  Market  Value
determined  as of the record date  mentioned  above,  and of which the numerator
shall be such Per  Share  Market  Value 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 one  outstanding  share of the Common
Stock as determined by the Board of Directors in good faith; provided,  however,
that in the  event of a  distribution  exceeding  ten  percent  (10%) of the net
assets  of  the  Company,  if the  Holders  of a  majority  in  interest  of the
Debentures dispute such valuation, such fair market value shall be determined by
a nationally  recognized or major  regional  investment  banking firm or firm of
independent  certified public  accountants of recognized  standing (which may be
the firm that  regularly  examines the financial  statements of the Company) (an
"Appraiser")  selected in good faith by the holders of a majority in interest of
Debentures then  outstanding;  and provided,  further,  that the Company,  after
receipt of the determination by such Appraiser shall have the right to select an
additional  Appraiser,  in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser.  In either
case the adjustments  shall be described in a statement  provided to the Holders
of the portion of assets or evidences of  indebtedness  so  distributed  or such
subscription  rights  applicable to one share of Common Stock.  Such  adjustment
shall be made whenever any such  distribution is made and shall become effective
immediately after the record date mentioned above.

                                       12
<PAGE>

        (vi)   In  case  of any  reclassification  of the  Common  Stock  or any
compulsory  share exchange  pursuant to which the Common Stock is converted into
other securities,  cash or property, the Holders shall have the right thereafter
to, at their option, (A) convert the then outstanding principal amount, together
with all accrued but unpaid  interest and any other amounts then owing hereunder
in respect of this Debenture only into the shares of stock and other securities,
cash and property  receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange,  and the Holders of the
Debentures  shall  be  entitled  upon  such  event to  receive  such  amount  of
securities,  cash or property  as the shares of the Common  Stock of the Company
into which the then outstanding principal amount,  together with all accrued but
unpaid  interest and any other  amounts then owing  hereunder in respect of this
Debenture could have been converted  immediately prior to such  reclassification
or share  exchange would have been entitled or (B) require the Company to prepay
the  aggregate  of its  outstanding  principal  amount of  Debentures,  plus all
interest and other  amounts due and payable  thereon,  at a price  determined in
accordance with Section 3(b). The entire prepayment price shall be paid in cash.
This provision shall similarly  apply to successive  reclassifications  or share
exchanges.

        (vii)  All  calculations  under  this  Section  4  shall  be made to the
nearest 1/100th of a cent or share, as the case may be.

        (viii) Whenever  the Initial  Conversion  Price is adjusted  pursuant to
any of Section  4(c)(ii) - (v), the Company shall promptly mail to each Holder a
notice  setting forth the  Conversion  Price after such  adjustment  and setting
forth a brief statement of the facts requiring such adjustment.

        (ix)   If (A) the  Company  shall  declare  a  dividend  (or  any  other
distribution)  on the Common  Stock;  (B) the  Company  shall  declare a special
nonrecurring  cash  dividend on or a  redemption  of the Common  Stock;  (C) the
Company  shall  authorize the granting to all holders of the Common Stock rights
or warrants to  subscribe  for or  purchase  any shares of capital  stock of any
class or of any  rights;  (D) the  approval of any  stockholders  of the Company
shall be required in connection with any  reclassification  of the Common Stock,
any  consolidation  or  merger  to which  the  Company  is a party,  any sale or
transfer  of all or  substantially  all of the  assets  of the  Company,  of any
compulsory  share of exchange  whereby the Common Stock is converted  into other
securities,  cash or property;  (E) the Company shall authorize the voluntary or
involuntary  dissolution,  liquidation  or  winding  up of  the  affairs  of the
Company;  then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures,  and shall
cause to be mailed to the Holders at their last  addresses  as they shall appear
upon the stock  books of the  Company,  at least 20  calendar  days prior to the
applicable record or effective date hereinafter  specified, a notice stating (x)
the date on which a record  is to be taken  for the  purpose  of such  dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to

                                       13
<PAGE>

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, however, that
the failure to mail such notice or any defect therein or in the mailing  thereof
shall not affect the validity of the corporate  action  required to be specified
in such  notice.  Holders are entitled to convert  Debentures  during the 20-day
period  commencing  the date of such notice to the  effective  date of the event
triggering such notice.

        (x) In case of any (1) merger or  consolidation  of the Company  with or
into another Person that would  constitute a Change of Control  Transaction,  or
(2) sale by the  Company of more than  one-half of the assets of the Company (on
an as valued basis) in one or a series of related transactions, or (3) tender or
other offer or exchange  (whether by the Company or another Person)  pursuant to
which holders of Common Stock are  permitted to tender or exchange  their shares
for other securities,  stock, cash or property of the Company or another Person;
then a Holder  shall  have the  right to (A) if  permitted  under  Section  3(b)
hereof,  exercise its rights of  prepayment  under  Section 3(b) with respect to
such event,  (B) convert  its  aggregate  principal  amount of  Debentures  then
outstanding  into the shares of stock and other  securities,  cash and  property
receivable  upon or deemed to be held by holders of Common Stock  following such
merger, consolidation or sale, and such Holder shall be entitled upon such event
or series of  related  events to receive  such  amount of  securities,  cash and
property  as the shares of Common  Stock into  which  such  aggregate  principal
amount of Debentures could have been converted immediately prior to such merger,
consolidation or sales would have been entitled,  (C) in the case of a merger or
consolidation,  (x) require the surviving  entity to issue shares of convertible
preferred stock or convertible debentures with such aggregate stated value or in
such face amount, as the case may be, equal to the aggregate principal amount of
Debentures  then held by such Holder,  plus all accrued and unpaid  interest and
other amounts  owing  thereon,  which newly issued shares of preferred  stock or
debentures shall have terms identical  (including with respect to conversion) to
the terms of this Debenture  (except,  in the case of preferred stock, as may be
required  to  reflect  the  differences  between  equity  and debt) and shall be
entitled to all of the rights and privileges of a Holder of Debentures set forth
herein  and  the  agreements  pursuant  to  which  the  Debentures  were  issued
(including,  without  limitation,  as such  rights  relate  to the  acquisition,
transferability,  registration  and  listing  of  such  shares  of  stock  other
securities  issuable upon conversion  thereof),  and (y) simultaneously with the
issuance of such convertible  preferred stock or convertible  debentures,  shall
have the right to convert  such  instrument  only into shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger or  consolidation,  or (D) in the event of an
exchange or tender offer or other transaction contemplated by clause (3) of this

                                       14
<PAGE>

Section,  tender or exchange its aggregate  principal  amount of Debentures  for
such securities,  stock, cash and other property receivable upon or deemed to be
held by holders of Common Stock that have tendered or exchanged  their shares of
Common  Stock  following  such  tender or  exchange,  and such  Holder  shall be
entitled upon such exchange or tender to receive such amount of securities, cash
and property as the shares of Common Stock into which such  aggregate  principal
amount of  Debentures  could have been  converted  (taking into account all then
accrued and unpaid dividends) immediately prior to such tender or exchange would
have been  entitled as would have been  issued.  In the case of clause (C),  the
conversion price applicable for the newly issued shares of convertible preferred
stock or  convertible  debentures  shall be based upon the amount of securities,
cash and  property  that  each  share of  Common  Stock  would  receive  in such
transaction  and  the  Conversion  Price  in  effect  immediately  prior  to the
effectiveness  or  closing  date for  such  transaction.  The  terms of any such
merger, sale,  consolidation,  tender or exchange shall include such terms so as
continue to give the Holders of Debentures the right to receive the  securities,
cash and property set forth in this Section upon any  conversion  or  redemption
following such event.  This provision  shall  similarly apply to successive such
events.

               (d) The Company  covenants  that it will at all times reserve and
keep available out of its authorized and unissued  shares of Common Stock solely
for the purpose of issuance  upon  conversion of the  Debentures  and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other  actual  contingent  purchase  rights  of  persons  other  than the
Holders,  not less than such  number  of  shares  of the  Common  Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments  and  restrictions  of  Section  4(b))  upon the  conversion  of the
outstanding   principal  amount  of  the  Debentures  and  payment  of  interest
hereunder.  The Company  covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized,  issued and fully
paid,  nonassessable  and, if the Underlying Shares  Registration  Statement has
been declared effective under the Securities Act,  registered for public sale in
accordance with such Underlying Shares Registration Statement.

               (e) Upon a conversion hereunder the Company shall not be required
to issue  stock  certificates  representing  fractions  of shares of the  Common
Stock,  but may if  otherwise  permitted,  make a cash payment in respect of any
final  fraction of a share based on the Per Share Market Value at such time.  If
the Company  elects not, or is unable,  to make such a cash payment,  the Holder
shall be  entitled  to receive,  in lieu of the final  fraction of a share,  one
whole share of Common Stock.

               (f) The issuance of  certificates  for shares of the Common Stock
on  conversion  of the  Debentures  shall be made without  charge to the Holders
thereof  for any  documentary  stamp or  similar  taxes  that may be  payable in
respect of the issue or delivery of such certificate,  provided that the Company
shall not be  required  to pay any tax that may be  payable  in  respect  of any
transfer  involved in the  issuance and  delivery of any such  certificate  upon
conversion  in a name  other  than  that of the  Holder  of such  Debentures  so
converted  and the  Company  shall  not be  required  to issue or  deliver  such
certificates  unless or until the  person or  persons  requesting  the  issuance
thereof  shall  have paid to the  Company  the  amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.

                                       15
<PAGE>

               (g) Any and all notices or other  communications or deliveries to
be provided  by the  Holders of the  Debentures  hereunder,  including,  without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile,  sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid,  addressed to the Company,  at
16133 Ventura  Boulevard,  Suite 635, Encino,  CA 91436 (facsimile  number (818)
981-2658), attention Chief Executive Officer, or such other address or facsimile
number as the Company  may  specify  for such  purposes by notice to the Holders
delivered in accordance with this Section, with a copy to The N.I.R. Group, LLC,
155 First Street,  Suite B, Mineola, NY 11501(facsimile  number  (516)739-7115),
attention CSR. Any and all notices or other  communications  or deliveries to be
provided by the Company hereunder shall be in writing and delivered  personally,
by facsimile,  sent by a nationally recognized overnight courier service or sent
by certified or registered mail,  postage  prepaid,  addressed to each Holder of
the  Debentures  at the  facsimile  telephone  number or address of such  Holder
appearing on the books of the Company,  or if no such facsimile telephone number
or address appears, at the principal place of business of the holder. Any notice
or other  communication  or  deliveries  hereunder  shall be  deemed  given  and
effective  on the  earliest of (i) the date of  transmission,  if such notice or
communication  is delivered  via  facsimile at the  facsimile  telephone  number
specified in this Section prior to 8:00 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
8:00 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date,  (iii)  four days  after  deposit in the United  States
mail, (iv) the Business Day following the date of mailing, if send by nationally
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given.

               Section 5.   Optional Prepayment.

               (a) The  Company  shall have the right,  exercisable  at any time
upon  twenty  (20)  Trading  Days  prior  written  notice to the  Holders of the
Debentures to be prepaid and  accompanied  by any waiver  required by holders of
senior indebtedness of the Company for such prepayment (the "Optional Prepayment
Notice"),  to prepay, all or any portion of the outstanding  principal amount of
the  Debentures  which have not previously  been repaid or for which  Conversion
Notices have not previously been delivered.  The prepayment  price applicable to
such  prepayments  shall  equal the  Optional  Prepayment  Price (as  defined in
Section 7) and shall be paid in cash. Any such  prepayment  shall be free of any
claim of  subordination.  The  Holders  shall have the right to tender,  and the
Company shall honor, Conversion Notices delivered prior to the expiration of the
twentieth  (20th)  Trading  Day after  receipt  by the  Holders  of an  Optional
Prepayment Notice for such Debentures (the 20th Trading Day after receipt by the
Holders of an Optional  Prepayment Notice is referred to herein as the "Optional
Prepayment Date").

                                       16
<PAGE>

               (b) If any portion of the Optional  Prepayment Price shall not be
paid by the Company by the second  (2nd)  Business  Day  following  the Optional
Prepayment  Date,  the Optional  Prepayment  Price shall be increased by 15% per
annum (to accrue  daily) until paid (which  amount  shall be paid as  liquidated
damages  and not as a penalty).  In  addition,  if any  portion of the  optional
Prepayment   Price  remains  unpaid  through  the  expiration  of  the  Optional
Prepayment  Date,  the Holder  subject to such  prepayment  may elect by written
notice to the Company to either (x) demand  conversion  in  accordance  with the
formula  and the time period  therefor  set forth in Section 4 of any portion of
the principal amount of Debentures for which the Optional Prepayment Price, plus
accrued  liquidated  damages  thereof,  has not been paid in full  (the  "Unpaid
Prepayment  Principal  Amount"),  in which event the applicable Per Share Market
Value  shall be the  lower  of the Per  Share  Market  Value  calculated  on the
Optional  Prepayment  Date and the Per  Share  Market  Value as of the  Holder's
written  demand  for  conversion,  or (y)  invalidate  ab initio  such  optional
redemption,  notwithstanding  anything herein contained to the contrary.  If the
Holder elects option (x) above,  the Company shall within three (3) Trading Days
such election is deemed  delivered  hereunder to the Holder the shares of Common
Stock issuable upon conversion of the Unpaid Prepayment Principal Amount subject
to such conversion demand and otherwise  perform its obligations  hereunder with
respect  thereto;  or, if the Holder elects option (y) above,  the Company shall
promptly, and in any event not later than three (3) Trading Days from receipt of
notice of such election, return to the Holder new Debentures for the full Unpaid
Prepayment  Principal  Amount.  If, upon an election under option (x) above, the
Company fails to deliver the shares of Common Stock issuable upon  conversion of
the Unpaid Prepayment  Principal Amount within the time period set forth in this
Section,  the Company shall pay to the Holder in cash, as liquidated damages and
not as a penalty, $2,500 per day until the Company delivers such Common Stock to
the Holder.

               Section 6.    INTENTIONALLY OMITTED

               Section 7.    Definitions.   For   the   purposes   hereof,   the
following terms shall have the following meanings:

               "Business Day" means any day except Saturday,  Sunday and any day
which shall be a legal  holiday or a day on which  banking  institutions  in the
State of New York or the State of California  are  authorized or required by law
or other government action to close.

                                       17
<PAGE>

               "Change of Control  Transaction"  means the  occurrence of any of
(i) an  acquisition  after the date hereof by an  individual  or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 33% of the voting securities of the Company,  (ii) a replacement of
more than one-half of the members of the Company's  board of directors  which is
not approved by those  individuals  who are members of the board of directors on
the date hereof in one or a series of related transactions,  (iii) the merger of
the  Company  with  or  into  another  entity,  consolidation  or sale of all or
substantially  all of the  assets of the  Company  in one or a series of related
transactions,  unless following such  transaction,  the holders of the Company's
securities  continue  to hold at least  33% of such  securities  following  such
transaction  or (iv) the  execution  by the Company of an agreement to which the
Company is a party or by which it is bound,  providing for any of the events set
forth above in (i), (ii) or (iii).

               "Commission" means the Securities and Exchange Commission.

               "Common  Stock" means the Class A Common Stock,  no par value per
share,  of the  Company  and stock of any other class into which such shares may
hereafter have been reclassified or changed.

               "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

               "Interest  Effectiveness  Date" means the earlier to occur of (x)
the Effectiveness  Date and (y) the date that an Underlying Shares  Registration
Statement is declared effective by the Commission.

               "Optional  Prepayment  Price" for any Debentures shall equal 120%
of principal  amount of  Debentures  to be prepaid,  plus all accrued and unpaid
interest thereon.

               "Original  Issue Date" shall mean the date of the first  issuance
of the  Debentures  regardless  of the number of transfers of any  Debenture and
regardless  of the number of  instruments  which may be issued to evidence  such
Debenture.

                                       18
<PAGE>

               "Per Share  Market  Value" means on any  particular  date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or a Subsequent  Market,
the  closing  bid  price  for a share of  Common  Stock in the  over-the-counter
market,  as reported by the National  Quotation  Bureau  Incorporated or similar
organization or agency  succeeding to its functions of reporting  prices) at the
close of business on such date,  or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices),  then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the  Holder,  or (d) if the Common  Stock is not then  publicly  traded the fair
market value of a share of Common Stock as determined  by an Appraiser  selected
in good faith by the Holders of a majority in interest of the  principal  amount
of Debentures then outstanding.

               "Person"  means a  corporation,  an  association,  a partnership,
organization,  a business, an individual,  a government or political subdivision
thereof or a governmental agency.

               "Purchase  Agreement"  means the  Secured  Convertible  Debenture
Purchase Agreement, dated as of the Original Issue Date, between the Company and
the original Holder of Debentures,  as amended,  modified or  supplemented  from
time to time in accordance with its terms.

               "Registration  Rights  Agreement" means the  Registration  Rights
Agreement,  dated as of the  Original  Issue  Date,  between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.

               "Securities Act" means the Securities Act of 1933, as amended.

               "Security Agreements" means the Security Agreement,  of even date
herewith  between the Company and the original Holder of Debentures,  as amended
modified or supplemented from time to time in accordance with its terms.

               "Trading Day" means (a) a day on which the Common Stock is traded
on the NASDAQ or on such  Subsequent  Market on which the  Common  Stock is then
listed or quoted,  or (b) if the  Common  Stock is not listed on the NASDAQ or a
Subsequent   Market,  a  day  on  which  the  Common  Stock  is  traded  in  the
over-the-counter  market,  as reported by the OTC Bulletin  Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin  Board, a day on which the Common
Stock is  quoted in the  over-the-counter  market as  reported  by the  National
Quotation Bureau Incorporated (or any similar  organization or agency succeeding
its functions of reporting prices);  provided,  however,  that in the event that
the  Common  Stock is not  listed or  quoted  as set  forth in (a),  (b) and (c)
hereof, then Trading Day shall mean any day except Saturday,  Sunday and any day
which shall be a legal  holiday or a day on which  banking  institutions  in the
State of New York are authorized or required by law or other  government  action
to close.

                                       19
<PAGE>

               "Underlying  Shares"  means the shares of Common  Stock  issuable
upon  conversion of Debentures or as payment of interest in accordance  with the
terms hereof.

               "Underlying  Shares  Registration  Statement" means  registration
statement  meeting  the  requirements  set  forth  in  the  Registration  Rights
Agreement,  covering among other things the resale of the Underlying  Shares and
naming the Holder as a "selling stockholder" thereunder.

               Section 8. Except as expressly  provided herein,  no provision of
this  Debenture  shall alter or impair the  obligation of the Company,  which is
absolute and  unconditional,  to pay the principal of,  interest and  liquidated
damages (if any) on, this  Debenture at the time,  place,  and rate,  and in the
coin or currency,  herein  prescribed.  This Debenture is a direct obligation of
the Company.  This Debenture  ranks pari passu with all other  Debentures now or
hereafter  issued  under  the  terms  set forth  herein.  The  Company  may only
voluntarily  prepay  the  outstanding  principal  amount  on the  Debentures  in
accordance with Section 5 hereof.

               Section 9. This Debenture  shall not entitle the Holder to any of
the rights of a stockholder of the Company,  including without  limitation,  the
right to vote, to receive dividends and other  distributions,  or to receive any
notice of, or to attend,  meetings of stockholders  or any other  proceedings of
the Company,  unless and to the extent  converted into shares of Common Stock in
accordance with the terms hereof.

               Section 10. If this Debenture shall be mutilated, lost, stolen or
destroyed,  the Company shall execute and deliver,  in exchange and substitution
for  and  upon  cancellation  of a  mutilated  Debenture,  or in  lieu  of or in
substitution for a lost, stolen or destroyed debenture,  a new Debenture for the
principal amount of this Debenture so mutilated,  lost,  stolen or destroyed but
only upon  receipt  of  evidence  of such  loss,  theft or  destruction  of such
Debenture,  and of the  ownership  hereof,  and  indemnity,  if  requested,  all
reasonably satisfactory to the Company.

               Section 11. This Debenture  shall be governed by and construed in
accordance  with the laws of the State of New  York,  without  giving  effect to
conflicts of laws thereof. The Company and the Holders hereby irrevocably submit
to the exclusive  jurisdiction  of the state and federal  courts  sitting in the
County of Nassau, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction  contemplated  hereby or discussed herein,  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, or that such suit, action or proceeding is improper. Each of the
Company and the Holder hereby irrevocably waives personal service of process and
consents  to process  being  served in any such suit,  action or  proceeding  by
receiving  a copy  thereof  sent to the  Company  at the  address  in effect for
notices  to it  under  this  instrument  and  agrees  that  such  service  shall
constitute good and sufficient  service of process and notice  thereof.  Nothing
contained  herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.

                                       20
<PAGE>

               Section  12. Any waiver by the  Company or the Holder of a breach
of any provision of this Debenture  shall not operate as or be construed to be a
waiver  of any  other  breach of such  provision  or of any  breach of any other
provision of this Debenture.  The failure of the Company or the Holder to insist
upon strict  adherence to any term of this  Debenture  on one or more  occasions
shall not be  considered a waiver or deprive that party of the right  thereafter
to  insist  upon  strict  adherence  to  that  term  or any  other  term of this
Debenture. Any waiver must be in writing.

               Section  13.  If any  provision  of this  Debenture  is  invalid,
illegal or unenforceable,  the balance of this Debenture shall remain in effect,
and if any provision is  inapplicable  to any person or  circumstance,  it shall
nevertheless remain applicable to all other persons and circumstances.

               Section 14.  Whenever any payment or other  obligation  hereunder
shall be due on a day other than a Business  Day,  such payment shall be made on
the next succeeding Business Day.

               Section 15. The payment  obligations under this Debenture and the
obligations  of the Company to the Holder  arising upon the conversion of all or
any of the  Debentures  in  accordance  with the  provisions  hereof are secured
pursuant to the Security Agreements.

                          [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                                    SIGNATURE PAGE FOLLOWS]

                                       21
<PAGE>

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

No. 2

                                   SITESTAR CORPORATION

                                        /s/ Clinton J. Sallee
                                   By:________________________________
                                      Name: Clinton J. Sallee
                                      Title:  President & CEO

Attest:

By:___________________________
   Name:
   Title:

                                       22
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

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

The undersigned  hereby elects to convert the attached  Debenture into shares of
Class  A  Common  Stock,  no par  value  per  share  (the  "Common  Stock"),  of
------------------- (the  "Company")  according to the conditions  hereof, as of
the date written below. If shares are to be issued in the name of a person other
than  undersigned,  the  undersigned  will pay all transfer  taxes  payable with
respect  thereto and is delivering  herewith such  certificates  and opinions as
reasonably  requested  by the Company in  accordance  therewith.  No fee will be
charged to the holder for any  conversion,  except for such transfer  taxes,  if
any.

Conversion calculations:

                                ----------------------------------------------
                                Date to Effect Conversion

                                ----------------------------------------------
                                Principal Amount of Debentures to be Converted

                                ----------------------------------------------
                                Number of shares of Common Stock to be Issued

                                ----------------------------------------------
                                Applicable Conversion Price

                                ----------------------------------------------
                                Signature

                                -----------------------------------------------
                                Name

                                ----------------------------------------------
                                Address

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