Document:

Secured Debenture

    
      

      

    

    Exhibit
      10.6.1

     

     

    

      Dated:
        February 20, 2007

       

      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. CLSC-1-2	
                $675,000

              

      

       

       

      COBALIS
        CORPORATION

       

      Secured
        Convertible Debenture

       

      Due:
        February 20, 2009

       

      This
        Secured Convertible Debenture (the “Debenture”)
        is
        issued by COBALIS
        CORPORATION, a
        Nevada
        corporation (the “Company”),
        to
CORNELL
        CAPITAL PARTNERS, LP
        (the
“Holder”),
        pursuant to that certain Securities Purchase Agreement (the “Securities
        Purchase Agreement”)
        dated
        December 20, 2006. 

       

      FOR
        VALUE RECEIVED,
        the
        Company hereby promises to pay to the Holder or its successors and assigns
        the
        principal sum of Six Hundred Seventy Five Thousand Dollars ($675,000) together
        with accrued but unpaid interest on or before February 20, 2009 (the
“Maturity
        Date”)
        in
        accordance with the following terms:

       

      Section
        1. General
        Terms

       

      (a)    Interest.
        Interest shall accrue on the outstanding principal balance hereof at an annual
        rate equal to eight percent (8%). Interest shall be calculated on the basis
        of a
        365-day year and the actual number of days elapsed, to the extent permitted
        by
        applicable law. Interest hereunder shall be paid on the Maturity Date (or
        sooner
        as provided herein) to the Holder or its assignee in whose name this Debenture
        is registered on the records of the Company regarding registration and transfers
        of Debentures in cash or in Common Stock (valued at the Closing Bid Price
        on the
        Trading Day immediately prior to the date paid) at the option of the Company.
        

       

      (b)    Security.
        The
        Debenture is secured by (i) a security interest in all of the assets of the
        Company and of each of the Company's subsidiaries as evidenced by the security
        agreement dated December 20, 2006 (the “Security
        Agreement”)
        and
        (ii) certain shares of common stock of the Company (the “Pledged
        Shares”)
        as
        evidenced by the pledge and escrow agreement December 20, 2006 (the
“Pledge
        Agreement,”
and
        together with the Security Agreement, the “Security
        Documents”).

       

      
        
          
          

        

        
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      Section
        2. Events
        of Default.

       

      (a)    An
        “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 other charges
        in
        respect of this Debenture, free of any claim of subordination, as and when
        the
        same shall become due and payable whether upon an Optional Redemption (as
        defined in Section
        3(a)),
        the
        Maturity Date, by acceleration, or otherwise;

       

      (ii)   The
        Company or any subsidiary of the Company shall commence, or there shall be
        commenced against the Company or any subsidiary of the Company under any
        applicable bankruptcy or insolvency laws as now or hereafter in effect or
        any
        successor thereto, or the Company or any subsidiary of 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 of the Company or there is commenced against the Company or any
        subsidiary of the Company any such bankruptcy, insolvency or other proceeding
        which remains undismissed for a period of 61 days; or the Company or any
        subsidiary of the Company 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 of the Company suffers any appointment of any
        custodian, private or court appointed receiver or the like for it or any
        substantial part of its property which continues undischarged or unstayed
        for a
        period of sixty one (61) days; or the Company or any subsidiary of the Company
        makes a general assignment for the benefit of creditors; or the Company or
        any
        subsidiary of 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 of the Company 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 of the Company shall by any act or
        failure to act expressly 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 of the Company for the purpose of effecting any of the
        foregoing;

       

      (iii)   The
        Company or any subsidiary of the Company shall default in any of its obligations
        under any other debenture or any mortgage, credit agreement or other facility,
        indenture agreement, factoring agreement or other instrument under which
        there
        may be issued, or by which there may be secured or evidenced any indebtedness
        for borrowed money or money due under any long term leasing or factoring
        arrangement of the Company or any subsidiary of the Company in an amount
        exceeding $500,000, 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;

       

      
        
          
          

        

        
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      (iv)   The
        Common Stock shall cease to be quoted for trading or listing for trading
        on any
        of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the
        Nasdaq
        National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin
        Board (“OTC”)
        (each,
        a “Primary
        Market”)
        and
        shall not again be quoted or listed for trading on any Primary Market within
        five (5) Trading Days of such delisting;

       

      (v)   The
        Company or any subsidiary of the Company shall be a party to any Change of
        Control Transaction not approved by a majority of the Board of the Company
        (as
        defined in Section
        6);
        

       

      (vi)   The
        Company shall fail to file the Underlying Shares Registration Statement (as
        defined in Section
        6)
        with
        the Commission (as defined in Section
        6),
        or the
        Underlying Shares Registration Statement shall not have been declared effective
        by the Commission, in each case within the time periods set forth in the
        Investor Registration Rights Agreement (“Registration
        Rights Agreement”)
        dated
        December 20, 2006 between the Company and the Holder, provided however, no
        event
        of default shall be deemed to have occurred if the Company has used its
        reasonable best efforts to timely obtain effectiveness of the Underlying
        Shares
        Registration Statement and failure to timely obtain effectiveness is due
        to
        changes in the Commission’s, or its staff’s, policy or interpretations with
        respect to the registration of transactions of the nature contemplated
        hereunder;

       

      (vii)   If
        the
        effectiveness of the Underlying Shares Registration Statement lapses for
        any
        reason or the Holder shall not be permitted to resell the shares of Common
        Stock
        underlying this Debenture under the Underlying Shares Registration Statement,
        in
        either case, for more than five (5) consecutive Trading Days or an aggregate
        of
        eight Trading Days (which need not be consecutive Trading Days);

       

      (viii)         
        The
        Company shall fail for any reason to deliver Common Stock certificates to
        a
        Holder prior to the fifth (5th)
        Trading
        Day after a Conversion Date, 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 in accordance with the terms hereof;
        

       

       
        (ix)   The
        Company shall fail for any reason to deliver the payment in cash pursuant
        to a
        Buy-In (as defined herein) within three (3) days after notice is claimed
        delivered hereunder; 

       

        
        (x)   The
        Company shall fail to observe or perform any other covenant, agreement or
        warranty contained in, or otherwise commit any breach or default of any
        provision of this Debenture (except as may be covered by Section
        2(a)(i) through 2(a)(ix)
        hereof)
        or any Transaction Document (as defined in Section
        6)
        which
        is not cured with in the time prescribed, or an Event of Default under any
        other
        debenture issued to the Holder in connection with the Securities Purchase
        Agreement shall occur;

       

      
        
          
          

        

        
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      (b)   During
        the time that any portion of this Debenture is outstanding, if any Event
        of
        Default has occurred, the full principal amount of this Debenture, together
        with
        interest and other amounts owing in respect thereof, to the date of acceleration
        shall become at the Holder's election, immediately due and payable in cash,
        provided
        however,
        the
        Holder may request (but shall have no obligation to request) payment of such
        amounts in Common Stock of the Company. However, the Company shall have a
        fifteen (15) day cure period for any Event of Default that is not within
        the
        control of the Company. In addition to any other remedies, the Holder shall
        have
        the right (but not the obligation) to convert this Debenture at any time
        after
        (x) an Event of Default or (y) the Maturity Date at the Conversion Price
        then
        in-effect. 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. Except
        with respect to the limitation set forth in Section 4(b)(i) hereof upon an
        Event
        of Default, notwithstanding any other provision of this Debenture or any
        Transaction Document, the Holder shall have no obligation to comply with
        or
        adhere to any limitations, if any, on the conversion of this Debenture or
        the
        sale of the Underlying Shares. 

       

      Section
        3. Redemptions.

       

      (a)   Company’s
        Optional Cash Redemption.
        The
        Company at its option shall have the right to redeem (“Optional
        Redemption”)
        a
        portion or all amounts outstanding under this Debenture prior to the Maturity
        Date provided
        that
        as of
        the date of the Holder’s receipt of a Redemption Notice (as defined herein) the
        Underlying Share Registration Statement is effective and has been effective
        for
        the prior 120 days. The Company shall pay an amount equal to the principal
        amount being redeemed plus accrued interest plus a redemption premium
        (“Redemption
        Premium”)
        equal
        to the following amounts: (i) twenty percent (20%) of the principal amount
        being
        redeemed if at the time of redemption the average daily VWAP of the Common
        Stock
        on the Primary Market has been below $1.00 for the prior ten consecutive
        Trading
        Days, (ii) thirty five percent (35%) of the principal amount being redeemed
        if
        at the time of redemption the average daily VWAP of the Common Stock on the
        Primary Market has been between $1.00 and $2.00 for the prior ten consecutive
        Trading Days, or (iii) twenty percent (20%) of the principal amount being
        redeemed if at the time of redemption the average daily VWAP of the Common
        Stock
        on the Primary Market has been above $2.00 for the prior ten consecutive
        Trading
        Days (collectively referred to as the “Redemption
        Amount”).
        In
        order to make a redemption, the Company shall first provide written notice
        to
        the Holder of its intention to make a redemption (the “Redemption
        Notice”)
        setting forth the amount of principal it desires to redeem. After receipt
        of the
        Redemption Notice the Holder shall have twenty (20) Business Days to elect
        to
        convert all or any portion of this Debenture, subject to the limitations
        set
        forth in Section
        4(b).
        On the
        twenty first (21st) Business Day after the Redemption Notice, the Company
        shall
        deliver to the Holder the Redemption Amount with respect to the principal
        amount
        redeemed after giving effect to conversions effected during the twenty (20)
        Business Day period.

       

      Section
        4. Conversion.

       

      (a)    Conversion
        at Option of Holder.

       

      
        
          
          

        

        
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      (i)   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 (as defined in Section
        6)
        (subject to the limitations on conversion set forth in Section
        4(b)
        hereof).
        The number of shares of Common Stock issuable upon a conversion hereunder
        equals
        the quotient obtained by dividing (x) the outstanding amount of this Debenture
        to be converted by (y) the Conversion Price (as defined in Section
        4(c)(i)).
        The
        Company shall deliver Common Stock certificates to the Holder prior to the
        Fifth
        (5th)
        Trading
        Day after a Conversion Date.

       

      (ii)   Notwithstanding
        anything to the contrary contained herein, if on any Conversion Date: (1)
        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 principal
        and interest hereunder in shares of Common Stock; (2) the Common Stock is
        not
        listed or quoted for trading on the a Primary Market; or (3) the Company
        has
        failed to timely satisfy a conversion; then, at the option of the Holder,
        the
        Company, in lieu of delivering shares of Common Stock pursuant to Section
        4(a)(i),
        shall
        deliver, within three (3) Trading Days of each applicable Conversion Date,
        an
        amount in cash equal to the product of the outstanding principal amount to
        be
        converted divided by the applicable Conversion Price, and multiplied by the
        highest Closing Bid Price of the stock from date of the conversion notice
        till
        the date that such cash payment is made.

       

      Further,
        if the Company shall not have delivered any cash due in respect of conversion
        of
        this Debenture by the fifth (5th)
        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
        provisions of this Section.

       

      (iii)   The
        Holder shall effect conversions by delivering to the Company a completed
        notice
        in the form attached hereto as Exhibit A (a “Conversion
        Notice”).
        The
        date on which a Conversion Notice is delivered is the “Conversion
        Date.”
Unless
        the Holder is converting the entire principal amount outstanding under this
        Debenture, the Holder is not required to physically surrender this Debenture
        to
        the Company in order to effect conversions. Conversions hereunder shall have
        the
        effect of lowering the outstanding principal amount of this Debenture plus
        all
        accrued and unpaid interest thereon in an amount equal to the applicable
        conversion. The Holder and the Company shall maintain records showing the
        principal amount converted and the date of such conversions. In the event
        of any
        dispute or discrepancy, the records of the Holder shall be controlling and
        determinative in the absence of manifest error.

       

      (b)   Certain
        Conversion Restrictions.

       

      
        
           

        

        
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      (i)   The
        Company shall not effect any conversions of this Debenture and the Holder
        shall
        not have the right to convert any portion of this Debenture or receive shares
        of
        Common Stock as payment of interest hereunder to the extent that after giving
        effect to such such conversion or receipt of such interest payment, the Holder,
        together with any affiliate thereof, would beneficially own (as determined
        in
        accordance with Section 13(d) of the Exchange Act and the rules promulgated
        thereunder) in excess of 4.99% of the number
        of
        shares
        of Common Stock outstanding immediately after giving effect to such conversion
        or receipt of shares as payment of interest. Since the Holder will not be
        obligated to report to the Company the number of shares of Common Stock it
        may
        hold at the time of a conversion hereunder, unless the conversion at issue
        would
        result in the issuance of shares of Common Stock in excess of 4.99% of the
        then
        outstanding shares of Common Stock without regard to any other shares which
        may
        be beneficially owned by the Holder or an affiliate thereof, the Holder shall
        have the authority and obligation to determine whether the restriction contained
        in this Section will limit any particular conversion hereunder 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 this
        Debenture is convertible shall be the responsibility and obligation of the
        Holder. If the Holder has delivered a Conversion Notice for a principal amount
        of this Debenture that, without regard to any other shares that the Holder
        or
        its affiliates may beneficially own, would result in the issuance in excess
        of
        the permitted amount hereunder, the Company shall notify the Holder of this
        fact
        and shall honor the conversion for the maximum principal amount permitted
        to be
        converted on such Conversion Date in accordance with the periods described
        in
Section
        4(a)(i)
        and, any
        principal amount tendered for conversion in excess of the permitted amount
        hereunder shall remain outstanding under this Debenture. 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 65 days prior notice to the Company. Other Holders
        shall be unaffected by any such waiver.

       

      (ii)   The
        Company shall
        not issue any shares of Common Stock pursuant to this Debenture, and the
        Holder
        of this Debenture shall not have the right to receive any shares of Common
        Stock
        pursuant to this Debenture, if the issuance of any such shares of Common
        Stock
        would cause the total shares of Common Stock issued under this Debenture
        or any
        other debenture issued pursuant to the Securities Purchase Agreement to be
        greater than 77,000,000 shares of Common Stock.  

       

      (c)   Conversion
        Price and Adjustments to Conversion Price.

       

      (i)   The
        conversion price in effect on any Conversion Date shall be equal to the lesser
        of (a) $0.9955 (the “Fixed
        Conversion Price”)
        or (b)
        ninety percent (90%) of the average of the three (3) lowest daily Volume
        Weighted Average Prices of the Common Stock during the fifteen (15) Trading
        Days
        immediately preceding the Conversion Date as quoted by Bloomberg, LP (the
        “Market
        Conversion Price”).
        The
        Fixed Conversion Price and the Market Conversion Price are collectively referred
        to as the “Conversion
        Price.”
The
        Conversion Price may be adjusted pursuant to the other terms of this Debenture.
        

       

      
        (ii)   If
          the
          Company, at any time while this Debenture is outstanding, shall (a) 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 (including by way of reverse stock
          split)
          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 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.

         

        
          
             

          

          
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      (iii)   If
        the
        Company, at any time while this Debenture is outstanding, shall issue rights,
        options or warrants to all holders of Common Stock (and not to the Holder)
        entitling them to subscribe for or purchase shares of Common Stock at a price
        per share less than the Conversion Price, then the 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 the Conversion Price. Such adjustment
        shall
        be made whenever such rights or warrants are issued, and shall become effective
        immediately after the record date for the determination of stockholders entitled
        to receive such rights, options or warrants. 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 Conversion Price pursuant
        to
        this Section, if any such right, option or warrant shall expire and shall
        not
        have been exercised, the 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
        Conversion Price made pursuant to the provisions of this Section after the
        issuance of such rights or warrants) had the adjustment of the 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, at any time while this
        Debenture is outstanding, shall issue shares of Common Stock or rights,
        warrants, options or other securities or debt that are 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 (if the holder of the Common Stock or Common
        Stock Equivalent so issued shall at any time, whether by operation of purchase
        price adjustments, reset provisions, floating conversion, exercise or exchange
        prices or otherwise, or due to warrants, options or rights per share which
        is
        issued in connection with such issuance, be entitled to receive shares of
        Common
        Stock at a price per share which is less than the Conversion Price, such
        issuance shall be deemed to have occurred for less than the Conversion Price),
        then, at the sole option of the Holder, the Conversion Price shall be adjusted
        to mirror the conversion, exchange or purchase price for such Common Stock
        or
        Common Stock Equivalents (including any reset provisions thereof) at issue.
        Such
        adjustment shall be made whenever such Common Stock or Common Stock Equivalents
        are issued. The Company shall notify the Holder in writing, no later than
        one
        (1) business day following the issuance of any Common Stock or Common Stock
        Equivalent subject to this Section, indicating therein the applicable issuance
        price, or of applicable reset price, exchange price, conversion price and
        other
        pricing terms. No adjustment under this Section shall be made as a result
        of
        issuances of Excluded Securities.

       

      
        
          
          

        

        
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      (v)   If
        the
        Company, at any time while this Debenture is outstanding, shall distribute
        to
        all holders of Common Stock (and not to the Holder) evidences of its
        indebtedness or assets or rights or warrants to subscribe for or purchase
        any
        security, then in each such case the Conversion Price at which this Debenture
        shall thereafter be convertible shall be determined by multiplying the
        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 Closing Bid Price determined
        as
        of the record date mentioned above, and of which the numerator shall be such
        Closing Bid Price 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. In either case the
        adjustments shall be described in a statement provided to the Holder 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 Holder shall have the right thereafter to, at its 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 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 Holder of this Debenture
        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 outstanding
        principal amount of this Debenture, plus all interest and other amounts due
        and
        payable thereon. The entire prepayment price shall be paid in cash. This
        provision shall similarly apply to successive reclassifications or share
        exchanges.

       

      (vii)   Whenever
        the Conversion Price is adjusted pursuant to Section
        4
        hereof,
        the Company shall promptly mail to the Holder a notice setting forth the
        Conversion Price after such adjustment and setting forth a brief statement
        of
        the facts requiring such adjustment.

       

      (viii)   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 exchange whereby the Common
        Stock
        is converted into other securities, cash or property; or (E) the Company
        shall
        authorize the voluntary or involuntary dissolution, liquidation or winding
        up of
        the affairs of the Company; then, in each case, the Company shall cause to
        be
        filed at each office or agency maintained for the purpose of conversion of
        this
        Debenture, and shall cause to be mailed to the Holder at its last address
        as it
        shall appear upon the stock books of the Company, at least twenty (20) calendar
        days prior to the applicable record or effective date hereinafter specified,
        a
        notice stating (x) the date on which a record is to be taken for the purpose
        of
        such dividend, distribution, redemption, rights or warrants, or if a record
        is
        not to be taken, the date as of which the holders of the Common Stock of
        record
        to be entitled to such dividend, distributions, redemption, rights or warrants
        are to be determined or (y) the date on which such reclassification,
        consolidation, merger, sale, transfer or share exchange is expected to become
        effective or close, and the date as of which it is expected that holders
        of the
        Common Stock of record shall be entitled to exchange their shares of the
        Common
        Stock for securities, cash or other property deliverable upon such
        reclassification, consolidation, merger, sale, transfer or share exchange,
        provided, that the failure to 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. The Holder is entitled to convert this Debenture
        during the 20-day calendar period commencing the date of such notice to the
        effective date of the event triggering such notice.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      (ix)   In
        case
        of any (1) merger or consolidation of the Company or any subsidiary of the
        Company with or into another Person, or (2) sale by the Company or any
        subsidiary of the Company of more than one-half of the assets of the Company
        in
        one or a series of related transactions, a Holder shall have the right to
        (A)
        exercise any rights under Section
        2(b),
        (B)
        convert the aggregate amount of this Debenture 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 this Debenture could
        have
        been converted immediately prior to such merger, consolidation or sales would
        have been entitled, or (C) in the case of a merger or consolidation, require
        the
        surviving entity to issue to the Holder a convertible Debenture with a principal
        amount equal to the aggregate principal amount of this Debenture then held
        by
        such Holder, plus all accrued and unpaid interest and other amounts owing
        thereon, which such newly issued convertible Debenture shall have terms
        identical (including with respect to conversion) to the terms of this Debenture,
        and shall be entitled to all of the rights and privileges of the Holder of
        this
        Debenture set forth herein and the agreements pursuant to which this Debentures
        were 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 or consolidation shall include
        such terms so as to continue to give the Holder 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)   Other
        Provisions.

       

      (i)   The
        Company shall at all times reserve and keep available out of its authorized
        Common Stock the Initial Share Reserve (as defined in the Securities Purchase
        Agreement) and after the Company increases its authorized Common Stock in
        accordance with Section 4(o) of the Securities Purchase Agreement, the Share
        Reserve (as defined in the Securities Purchase Agreement)and within three
        (3)
        Business Days following the receipt by the Company of a Holder's notice that
        such applicable number of Underlying Shares is not so reserved, the Company
        shall promptly reserve a sufficient number of shares of Common Stock to comply
        with such requirement. If at any time the Share Reserve is insufficient to
        effect the full conversion of the Convertible Debentures or the full exercise
        of
        the Warrants, the Company shall increase the Share Reserve accordingly. If
        the
        Company does not have sufficient authorized and unissued shares of Common
        Stock
        available to increase the Share Reserve, the Company shall call and hold
        a
        special meeting of the shareholders within seventy five (75) days of such
        occurrence, for the sole purpose of increasing the number of shares authorized.
        The Company’s management shall recommend to the shareholders to vote in favor of
        increasing the number of shares of Common Stock authorized. Management shall
        also vote all of its shares in favor of increasing the number of authorized
        shares of Common Stock.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      (ii)   All
        calculations under this Section
        4
        shall be
        rounded up to the nearest $0.0001 or whole share.

       

      (iiii)        
        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 this Debenture and payment of interest on this
        Debenture, each as herein provided, free from preemptive rights or any other
        actual contingent purchase rights of persons other than the Holder, 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 this Debenture or in the Transaction Documents) be issuable (taking
        into account the adjustments and restrictions set forth herein) upon the
        conversion of the outstanding principal amount of this Debenture and payment
        of
        interest hereunder. The Company covenants that all shares of Common Stock
        that
        shall be so issuable shall, upon issue, be duly 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.

       

      (iv)   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 Closing Bid Price 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.

       

      (v)    The
        issuance of certificates for shares of the Common Stock on conversion of
        this
        Debenture shall be made without charge to the Holder 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 Debenture so converted and the Company shall not be required
        to issue or deliver such certificates unless or until the person or persons
        requesting the issuance thereof shall have paid to the Company the amount
        of
        such tax or shall have established to the satisfaction of the Company that
        such
        tax has been paid.

       

      (vi)    Nothing
        herein shall limit a Holder's right to pursue actual damages or declare an
        Event
        of Default pursuant to Section
        2
        herein
        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, in each case without the need to post a bond or provide
        other
        security. The exercise of any such rights shall not prohibit the Holder from
        seeking to enforce damages pursuant to any other Section hereof or under
        applicable law. 

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (vii)   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(a)(i) by
        the
        fifth (5th)
        Trading
        Day after the Conversion Date, and if after such fifth (5th)
        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 commissions, 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 a Debenture in the principal amount equal to the
        principal amount of the attempted conversion or deliver to the Holder the
        number
        of shares of Common Stock that would have been issued had the Company timely
        complied with its delivery requirements under Section
        4(a)(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.

       

      Section
        5. Notices.
         Any
        notices, consents, waivers or other communications required or permitted
        to be
        given under the terms hereof must be in writing and will be deemed to have
        been
        delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
        when
        sent by facsimile (provided confirmation of transmission is mechanically
        or
        electronically generated and kept on file by the sending party); or (iii)
        one
        (1) Trading Day after deposit with a nationally recognized overnight delivery
        service, in each case properly addressed to the party to receive the same.
        The
        addresses and facsimile numbers for such communications shall be:

      

      
        	
                If
                  to the Company, to:

              	
                Cobalis
                  Corporation

              
	 	
                2445
                  McCabe Way, Suite 150

              
	 	
                Irvine,
                  CA 92614

              
	 	
                Attention:
                  Dr. Gerald J. Yaktan

              
	 	
                Telephone: 

              
	 	
                Facsimile: 

              
	 	 
	
                With
                  a copy to: 

              	
                Wilson
                  Sonsini Goodrich & Rosati

              
	 	
                12235
                  El Camino Real, Suite 200

              
	 	
                San
                  Diego, CA 92130

              
	 	
                Attention:
                  Martin J. Waters, Esq.

              
	 	
                Telephone:
                   858-350-2300

              
	 	
                Facsimile:
                   858-350-2399

              

      

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      
        	
                If
                  to the Holder:

              	
                Cornell
                  Capital Partners, LP

              
	 	
                101
                  Hudson Street, Suite 3700

              
	 	
                Jersey
                  City, NJ 07303

              
	 	
                Attention: Mark
                  Angelo

              
	 	
                Telephone: (201)
                  985-8300

              
	 	 
	
                With
                  a copy to:

              	
                David
                  Gonzalez, Esq. 

              
	 	
                101
                  Hudson Street - Suite 3700

              
	 	
                Jersey
                  City, NJ 07302

              
	 	
                Telephone: (201)
                  985-8300

              
	 	
                Facsimile: (201)
                  985-8266

              
	 	 

      

      

      or
        at
        such other address and/or facsimile number and/or to the attention of such
        other
        person as the recipient party has specified by written notice given to each
        other party three (3) business days prior to the effectiveness of such change.
        Written confirmation of receipt (i) given by the recipient of such notice,
        consent, waiver or other communication, (ii) mechanically or electronically
        generated by the sender's facsimile machine containing the time, date, recipient
        facsimile number and an image of the first page of such transmission or (iii)
        provided by a nationally recognized overnight delivery service, shall be
        rebuttable evidence of personal service, receipt by facsimile or receipt
        from a
        nationally recognized overnight delivery service in accordance with clause
        (i),
        (ii) or (iii) above, respectively.

       

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

       

      “Approved
        Stock Plan”
means
        a
        stock option plan that has been approved by the Board of Directors of the
        Company prior to the date of the Securities Purchase Agreement, pursuant
        to
        which the Company’s securities may be issued only to any employee, officer or
        director for services provided to the Company.

       

      “Business
        Day”
means
        any day except Saturday, Sunday and any day which shall be a federal legal
        holiday in the United States or a day on which banking institutions are
        authorized or required by law or other government action to close.

       

      “Change
        of Control Transaction”
means
        the occurrence of (a) an acquisition after the date hereof by an individual
        or
        legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the
        Exchange Act) of effective control (whether through legal or beneficial
        ownership of capital stock of the Company, by contract or otherwise) of in
        excess of fifty percent (50%) of the voting securities of the Company (except
        that the acquisition of voting securities by the Holder shall not constitute
        a
        Change of Control Transaction for purposes hereof), (b) a replacement at
        one
        time or over time of more than one-half of the members of the board of directors
        of the Company which is not approved by a majority of those individuals who
        are
        members of the board of directors on the date hereof (or by those individuals
        who are serving as members of the board of directors on any date whose
        nomination to the board of directors was approved by a majority of the members
        of the board of directors who are members on the date hereof), (c) the merger,
        consolidation or sale of fifty percent (50%) or more of the assets of the
        Company or any subsidiary of the Company in one or a series of related
        transactions with or into another entity, or (d) 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 (a), (b) or (c).

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      “Closing
        Bid Price”
means
        the price per share in the last reported trade of the Common Stock on a Primary
        Market or on the exchange which the Common Stock is then listed as quoted
        by
        Bloomberg, LP.

       

      “Commission”
means
        the Securities and Exchange Commission.

       

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

       

      “Conversion
        Date”
shall
        mean the date upon which the Holder gives the Company notice of their intention
        to effectuate a conversion of this Debenture into shares of the Company’s Common
        Stock as outlined herein.

       

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

       

      “Excluded
        Securities”
means,
        (a) shares issued or deemed to have been issued by the Company pursuant to
        an
        Approved Stock Plan (b) shares of Common Stock issued or deemed to be issued
        by
        the Company upon the conversion, exchange or exercise of any right, option,
        obligation or security outstanding on the date prior to date of the Securities
        Purchase Agreement, provided that the terms of such right, option, obligation
        or
        security are not amended or otherwise modified on or after the date of the
        Securities Purchase Agreement, and provided that the conversion price, exchange
        price, exercise price or other purchase price is not reduced, adjusted or
        otherwise modified and the number of shares of Common Stock issued or issuable
        is not increased (whether by operation of, or in accordance with, the relevant
        governing documents or otherwise) on or after the date of the Securities
        Purchase Agreement, and (c) the shares of Common Stock issued or deemed to
        be issued by the Company upon conversion of this Debenture.

       

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

       

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

       

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

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      “Trading
        Day”
means
        a
        day on which the shares of Common Stock are quoted on the OTC or quoted or
        traded on such Primary Market on which the shares of Common Stock are then
        quoted or listed; provided, that in the event that the shares of Common Stock
        are not listed or quoted, then Trading Day shall mean a Business
        Day.

       

      “Transaction
        Documents”
means
        the Securities Purchase Agreement or any other agreement delivered in connection
        with the Securities Purchase Agreement, including, without limitation, the
        Security Agreement, the Irrevocable Transfer Agent Instructions, and the
        Registration Rights Agreement.

       

      “Underlying
        Shares”
means
        the shares of Common Stock issuable upon conversion of this Debenture or
        as
        payment of interest in accordance with the terms hereof.

       

      “Underlying
        Shares Registration Statement”
means
        a
        registration statement meeting the requirements set forth in the Registration
        Rights Agreement.

       

      Section
        7. Except
        as
        expressly provided herein, no provision of this Debenture shall alter or
        impair
        the obligations of the Company, which are absolute and unconditional, to
        pay the
        principal of, interest and other charges (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. As long as this Debenture is outstanding, the Company shall not and
        shall cause their subsidiaries not to, without the consent of the Holder,
        (i)
        amend its certificate of incorporation, bylaws or other charter documents
        so as
        to adversely affect any rights of the Holder; (ii) repay, repurchase or offer
        to
        repay, repurchase or otherwise acquire shares of its Common Stock or other
        equity securities other than as to the Underlying Shares to the extent permitted
        or required under the Transaction Documents; or (iii) enter into any agreement
        with respect to any of the foregoing. 

       

      Section
        8. 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
        9. If
        this
        Debenture is mutilated, lost, stolen or destroyed, the Company shall execute
        and
        deliver, in exchange and substitution for and upon cancellation of the 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
        10. No
        indebtedness of the Company is senior to this Debenture in right of payment,
        whether with respect to interest, damages or upon liquidation or dissolution
        or
        otherwise. Without the Holder’s consent, the Company will not and will not
        permit any of their subsidiaries to, directly or indirectly, enter into,
        create,
        incur, assume or suffer to exist any indebtedness of any kind, on or with
        respect to any of its property or assets now owned or hereafter acquired
        or any
        interest therein or any income or profits there from that is senior in any
        respect to the obligations of the Company under this Debenture.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      Section
        11. This
        Debenture shall be governed by and construed in accordance with the laws
        of the
        State of New Jersey, without giving effect to conflicts of laws thereof.
        Each of
        the parties consents to the jurisdiction of the Superior Courts of the State
        of
        New Jersey sitting in Hudson County, New Jersey and the U.S. District Court
        for the District of New Jersey sitting in Newark, New Jersey in connection
        with
        any dispute arising under this Debenture and hereby waives, to the maximum
        extent permitted by law, any objection, including any objection based on
        forum non conveniens
        to the
        bringing of any such proceeding in such jurisdictions. 

       

      Section
        12. If
        the
        Company fails to strictly comply with the terms of this Debenture, then the
        Company shall reimburse the Holder promptly for all fees, costs and expenses,
        including, without limitation, attorneys’ fees and expenses incurred by the
        Holder in any action in connection with this Debenture, including, without
        limitation, those incurred: (i) during any workout, attempted workout, and/or
        in
        connection with the rendering of legal advice as to the Holder’s rights,
        remedies and obligations, (ii) collecting any sums which become due to the
        Holder, (iii) defending or prosecuting any proceeding or any counterclaim
        to any
        proceeding or appeal; or (iv) the protection, preservation or enforcement
        of any
        rights or remedies of the Holder.

       

      Section
        13. Any
        waiver by 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
        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
        14. If
        any
        provision of this Debenture is invalid, illegal or unenforceable, the balance
        of
        this Debenture shall remain in effect, and if any provision is inapplicable
        to
        any person or circumstance, it shall nevertheless remain applicable to all
        other
        persons and circumstances. If it shall be found that any interest or other
        amount deemed interest due hereunder shall violate applicable laws governing
        usury, the applicable rate of interest due hereunder shall automatically
        be
        lowered to equal the maximum permitted rate of interest. The Company covenants
        (to the extent that it may lawfully do so) that it shall not at any time
        insist
        upon, plead, or in any manner whatsoever claim or take the benefit or advantage
        of, any stay, extension or usury law or other law which would prohibit or
        forgive the Company from paying all or any portion of the principal of or
        interest on this Debenture as contemplated herein, wherever enacted, now
        or at
        any time hereafter in force, or which may affect the covenants or the
        performance of this indenture, and the Company (to the extent it may lawfully
        do
        so) hereby expressly waives all benefits or advantage of any such law, and
        covenants that it will not, by resort to any such law, hinder, delay or impeded
        the execution of any power herein granted to the Holder, but will suffer
        and
        permit the execution of every such as though no such law has been
        enacted.

       

      Section
        15. 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.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      Section
        16. 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
        17. THE
        PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY
        OF
        THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
        OR
        ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
        DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
        VERBAL
        OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
        FOR
        THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

       

      [REMAINDER
        OF PAGE INTENTIONLLY LEFT BLANK]

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

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

       

      
        	 	 	 
	 	
                COMPANY:

              
	 	
                COBALIS
                  CORPORATION 

              
	 
 	 
 	 
 
	 	By:  	/s/ Gerald
                Yakatan
	 	
                

                Name: Gerald
                  Yakatan

              
	 	
                Title: Chief
                  Executive Officer

              

      

       

       

      

        
          
            
            

          

          
            17

            
              

            

          

          
            
            

          

        

      

       

      EXHIBIT
        A

       

       

      CONVERSION
        NOTICE

       

       

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

       

      

      
        	
                TO:
                  

              

      

      

      The
        undersigned hereby irrevocably elects to convert $     of
        the
        principal amount of Debenture No. CLSC-1-2 into Shares of Common Stock of
        COBALIS
        CORPORATION,
        according to the conditions stated therein, as of the Conversion Date written
        below.

       

      
        	
                Conversion
                  Date:

              	 
	 	 
	
                Amount
                  to be converted:

              	
                $        

              
	 	 
	
                Conversion
                  Price:

              	
                $        

              
	 	 
	
                Number
                  of shares of Common Stock to be issued:

              	 
	 	 
	
                Amount
                  of Debenture Unconverted:

              	
                $          

              
	
                 

                 

                Please
                  issue the shares of Common Stock in the following name and to the
                  following address:

              
	 

                Issue
                  to:

              	 
	 	 
	 	 
	 	 
	Authorized
                Signature:	 
	 	 
	 Name:	 
	 	 
	 Title:	 
	 	 
	 Broker
                DTC Participant Code:	 
	 	 
	 Account
                Number:	 
	 	 

      

      

       

      18Termination Letter

    Exhibit
      10.1

    

    
      
        

      

    

    
      6375
        S.
        PECOS ROAD • SUITE 217 • LAS VEGAS • NEVADA • 89120

      T:
        (702)
        898-8388 · F:
        (702)
        898-2988

    

    

    February
      20, 2007

    

    Via
      Overnight Delivery 

    And
      Facsimile: (619) 827-0189

    

    CardMart
      USA, Inc.

    Daniel
      Correa, CEO

    PO
      Box
      2009

    Bonita,
      CA 91908

    

    Re:
      Termination
      of Letter Agreement.

    

    Dear
      Mr.
      Correa:

     

    
      As
        you
        are aware, a letter of intent was signed between our respective companies
        on
        November 17, 2006 (“Letter Agreement”), legally binding our respective
        corporations to certain terms and conditions set forth therein. This Letter
        Agreement established the basis for a merger between our companies which
        was to
        occur on or before November 30, 2006. At your request, this Letter Agreement
        was
        verbally amended by us on several occasions to extend the closing of our
        transaction until a date not later than February 15, 2007, in order to afford
        CardMart USA additional time to comply with due diligence items necessary
        to
        effect a merger with a public company (e.g., your audited financial statements,
        etc.).

      

      Our
        business is dependent upon fulfilling financial and management commitments
        in a
        timely fashion. Since we have not received any communication from you in
        well
        over a month, and you have not responded to our numerous requests for a report
        on your status and intentions relating to our pending merger transaction,
        we
        must conclude that you no longer intend to honor your written commitment
        as
        described in the Letter Agreement. 

      

      Accordingly,
        you are hereby formally notified that LitFunding has elected to terminate
        our
        Letter Agreement, effective this 20th day of February, 2007. Notwithstanding
        the
        fact that we no longer have any agreement or understanding between us, and
        in
        the spirit of fairness, we are amenable to commence new negotiations with
        respect to a potential merger between our companies. Please advise if you
        would
        like to propose such a new agreement. We await your reply.

    

     

    Sincerely,

    

    LitFunding
      Corp.

    

    
      	 	 	 	 
	By:
              /s/ Morton Reed	 	 	 
	
              
Morton
              Reed, President	 	 	
            

    cc:
      Dennis H. Johnston, Esquire

    cc:
      Howard Behling, by Email

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