Document:

PURCHASE
      AGREEMENT

     

    THIS
      PURCHASE AGREEMENT
      (this
“Agreement”) dated August 17, 2007, is entered into between YA
      GLOBAL INVESTMENTS, L.P.
      (the
“Purchaser”) and DELEK
      RESOURCES, INC.
      (the
“Company”).

    

    1. Purchase
      and Sale.
      Subject
      to the terms and conditions set forth in this Agreement, the Purchaser shall
      purchase from the Company and the Company shall issue to the Purchaser a Secured
      Convertible Debenture in the form attached hereto as Exhibit A (the
“Convertible
      Debenture,”
and
      as
      converted, the “Conversion
      Shares”))
      in
      the face amount of $90,000.

     

    2. Closing.
      The
      closing of the issuance of the Debenture shall occur within 1 business day
      of
      the satisfaction of all conditions precedent set forth in Section 6 hereof
      at
      the offices of the Purchaser (the “Closing”).

     

    3. Closing
      Procedure.
      At the
      Closing, the Company shall execute and deliver the Debenture and the Purchaser
      shall pay the Purchase Price in accordance with the disbursement instructions
      set forth on Schedule I attached hereto. 

     

    4. Representations,
      Warranties, and Covenants of the Company.  The
      Company makes the following representations, warranties and agreements and
      confirms the following understandings:

     

    (a) Organization
      and Qualification.
      The
      Company and its subsidiaries are corporations duly organized and validly
      existing in good standing under the laws of the jurisdiction in which they
      are
      incorporated, and have the requisite corporate power to own their properties
      and
      to carry on their business as now being conducted. Each of the Company and
      its
      subsidiaries is duly qualified as a foreign corporation to do business and
      is in
      good standing in every jurisdiction in which the nature of the business
      conducted by it makes such qualification necessary, except to the extent that
      the failure to be so qualified or be in good standing would not have a material
      adverse effect on the Company and its subsidiaries taken as a
      whole.

     

    (b) SEC
      Documents: Financial Statements.
      Since
      January 1, 2005, except as disclosed on the Disclosure Schedule attached hereto,
      the Company has filed all reports, schedules, forms, statements and other
      documents required to be filed by it with the SEC under the Securities Exchange
      Act of 1934, as amended (the “Exchange
      Act”)
      (all
      of the foregoing filed prior to the date hereof or amended after the date hereof
      and all exhibits included therein and financial statements and schedules thereto
      and documents incorporated by reference therein, being hereinafter referred
      to
      as the “SEC
      Documents”).
      As of
      their respective dates, the financial statements of the Company disclosed in
      the
      SEC Documents (the “Financial
      Statements”)
      complied as to form in all material respects with applicable accounting
      requirements and the published rules and regulations of the SEC with respect
      thereto. Such financial statements have been prepared in accordance with
      generally accepted accounting principles, consistently applied, during the
      periods involved (except (i) as may be otherwise indicated in such Financial
      Statements or the notes thereto, or (ii) in the case of unaudited interim
      statements, to the extent they may exclude footnotes or may be condensed or
      summary statements) and, fairly present in all material respects the financial
      position of the Company as of the dates thereof and the results of its
      operations and cash flows for the periods then ended (subject, in the case
      of
      unaudited statements, to normal year-end audit adjustments). No other
      information provided by or on behalf of the Company to the Subscribers which
      is
      not included in the SEC Documents, including, without limitation, information
      referred to in this Agreement, contains any untrue statement of a material
      fact
      or omits to state any material fact necessary in order to make the statements
      therein, in the light of the circumstances under which they were made, not
      misleading.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (c) 10(b)-5.
      The SEC
      Documents do not include any untrue statements of material fact, nor do they
      omit to state any material fact required to be stated therein necessary to
      make
      the statements made, in light of the circumstances under which they were made,
      not misleading.

     

    (d) Legal
      and Other Proceedings. Except
      as
      set forth in the SEC Documents, neither the Company, nor any of its affiliates
      or its executive officers or directors (in their capacity as executive officers
      or directors), is a party to any pending or, to the best knowledge of the
      Company, threatened, or unasserted but considered by it to be probable of
      assertion, claim, action, suit, investigation, arbitration or proceeding, or
      is
      subject to any order, judgment or decree that is reasonably expected by
      management of the Company to have, either individually or in the aggregate,
      a
      material adverse effect on the condition (financial or otherwise), earnings
      or
      results of operations of the Company. The Company is not, as of the date hereof,
      a party to or subject to any enforcement action instituted by, or any agreement
      or memorandum of understanding with, any federal or state regulatory authority
      restricting its operations or requiring that actions be taken, and no such
      regulatory authority has threatened any such action, memorandum or order against
      the Company and the Company has not received any report of examination from
      any
      federal or state regulatory agency which requires that the Company address
      any
      problem or take any action which has not already been addressed or taken in
      a
      manner satisfactory to the regulatory agency.

     

    (e) Authorization;
      Conflict; Valid and Binding Obligation. When
      issued in accordance herewith, the Convertible Debenture will be duly and
      validly authorized by all requisite corporate action of the Company. The Company
      has full right, power and capacity to execute, deliver and perform its
      obligations under the Convertible Debenture. No governmental license, permit
      or
      authorization and no registration or filings with any court, governmental
      authority or regulatory agency is required in connection with the Company's
      execution, delivery and/or performance of the Convertible Debenture, other
      than
      any filings required by applicable federal and state securities laws. The
      execution, delivery and performance of the Convertible Debenture, the
      consummation of the transactions herein contemplated and the compliance with
      the
      terms of the Convertible Debenture by the Company will not violate or conflict
      with any provision of the Articles of Incorporation, as amended or By-laws
      of
      the Company, or any agreement, instrument, law or regulation to which the
      Company is a party or by which the Company may be bound. The Convertible
      Debenture, upon execution and delivery by the Company, will represent the valid
      and binding obligation of the Company enforceable in accordance with its
      terms.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (f) 
      The
      Company is party to that certain Joint Operating Agreement (the “Joint
      Agreement”)
      dated
      March 6, 2007, by and between Quantum Oil & Gas, L.L.C., as Operator, and
      Touchstone Resources, LTD., the Company, and 0070728 B.C., LTD. as
      non-Operators, as amended or assigned from time to time. Pursuant to the Joint
      Agreement the Company has a 33.3333% working interest and a 24.999975% net
      revenue interest (“NRI”)
      in the
      Wanner 27-1 Well described in the Joint Agreement. The Company hereby
      represents, warrants, and confirms that with the payments to be made to Baleen,
      LLC and Sanjel USA, Inc. with the proceeds of the sale of the Convertible
      Debentures, the Company will maintain its full working interest and net revenue
      interests pursuant to the Operating Agreement. 

     

    (g) Overriding
      Royalty Interest.
      For
      a
      good and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the Company does hereby GRANT, BARGAIN, SELL, TRANSFER, ASSIGN,
      CONVEY, WARRANT and DELIVER to the Purchaser an overriding royalty interest
      in
      and to the interests of the Company derived from the Joint Agreement equal
      to
      ten percent (10%) of the NRI allocable to the Company. The Company shall pay
      to
      the Purchaser all amounts owed pursuant to this section on a monthly basis.
      

     

    5. Representations,
      Warranties, and Covenants of the Purchaser.  The
      Purchaser makes the following representations, warranties and agreements and
      confirms the following understandings:

     

    (a) Investment
      Purpose.
      The
      Purchaser is acquiring the Convertible Debentures and, upon conversion of
      Convertible Debentures, the Purchaser will acquire the Conversion Shares then
      issuable, for its own account for investment only and not with a view towards,
      or for resale in connection with, the public sale or distribution thereof,
      except pursuant to sales registered or exempted under the Securities Act;
      provided, however, that by making the representations herein, such Purchaser
      reserves the right to dispose of the Conversion Shares at any time in accordance
      with or pursuant to an effective registration statement covering such Conversion
      Shares or an available exemption under the Securities Act.

     

    (b) Accredited
      Investor Status.
      The
      Purchaser is an “Accredited
      Investor”
as
      that
      term is defined in Rule 501(a)(3) of Regulation D.

     

    (c) Reliance
      on Exemptions.
      The
      Purchaser understands that the Convertible Debentures are being offered and
      sold
      to it in reliance on specific exemptions from the registration requirements
      of
      United States federal and state securities laws and that the Company is relying
      in part upon the truth and accuracy of, and the Purchaser’s compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      the Purchaser set forth herein in order to determine the availability of such
      exemptions and the eligibility of such Purchaser to acquire such
      securities.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (d) No
      Governmental Review.
      The
      Purchaser understands that no United States federal or state agency or any
      other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Convertible Debentures or the Conversion Shares, or the
      fairness or suitability of the investment in the Convertible Debentures or
      the
      Conversion Shares, nor have such authorities passed upon or endorsed the merits
      of the offering of the Convertible Debentures or the Conversion
      Shares.

     

    (e) Transfer
      or Resale.
      The
      Purchaser understands that: (i) the Convertible Debentures have not been and
      are
      not being registered under the Securities Act or any state securities laws,
      and
      may not be offered for sale, sold, assigned or transferred unless (A)
      subsequently registered thereunder, or (B) the Purchaser shall have delivered
      to
      the Company an opinion of counsel, in a generally acceptable form, to the effect
      that such securities to be sold, assigned or transferred may be sold, assigned
      or transferred pursuant to an exemption from such registration requirements;
      (ii) any sale of such securities made in reliance on Rule 144 under the
      Securities Act (or a successor rule thereto) (“Rule 144”)
      may be
      made only in accordance with the terms of Rule 144 and further, if Rule 144
      is
      not applicable, any resale of such securities under circumstances in which
      the
      seller (or the person through whom the sale is made) may be deemed to be an
      underwriter (as that term is defined in the Securities Act) may require
      compliance with some other exemption under the Securities Act or the rules
      and
      regulations of the SEC thereunder; and (iii) neither the Company nor any other
      person is under any obligation to register such securities under the Securities
      Act or any state securities laws or to comply with the terms and conditions
      of
      any exemption thereunder. 

     

    (f) Legends.
      The
      Purchaser understands that the certificates or other instruments representing
      the Convertible Debentures and or the Conversion Shares shall bear a restrictive
      legend in substantially the following form (and a stop transfer order may be
      placed against transfer of such stock certificates):

     

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
      TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
      IN
      THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
      AN
      OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
      REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

    The
      legend set forth above shall be removed and the Company within two (2) business
      days shall issue a certificate without such legend to the holder of the
      Conversion Shares upon which it is stamped, if, unless otherwise required by
      state securities laws, (i) in connection with a sale transaction, provided
      the
      Conversion Shares are registered under the Securities Act or (ii) in connection
      with a sale transaction, after such holder provides the Company with an opinion
      of counsel, which opinion shall be in form, substance and scope customary for
      opinions of counsel in comparable transactions, to the effect that a public
      sale, assignment or transfer of the Conversion Shares may be made without
      registration under the Securities Act. 

     

    (g) Authorization,
      Enforcement.
      This
      Agreement has been duly and validly authorized, executed and delivered on behalf
      of the Purchaser and is a valid and binding agreement of the Purchaser
      enforceable in accordance with its terms, except as such enforceability may
      be
      limited by general principles of equity or applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation and other similar laws relating to,
      or
      affecting generally, the enforcement of applicable creditors’ rights and
      remedies.

     

    6. Use
      of Proceeds. The
      Company shall use the net proceeds of the Convertible Debenture as follows:
      (a)
      $54,000 shall be used to pay Sanjel USA, Inc. to conduct tests in connection
      with certain wells, (b) $26,000 to pay Baleen, LLC for rig operations in
      connection with certain wells, and (c) to pay the fees and expenses of the
      Purchaser set forth below. 

     

    7. Fees
      and Expenses of Purchaser.
      

     

    (a) The
      Company shall pay to Yorkville Advisors, LLC (“Yorkville”)
      $8,000
      for monitoring and managing the investment by the Purchaser, pursuant to
      Yorkville’s existing advisory obligations to the Purchaser. 

     

    (b) The
      Company shall pay a structuring fee to Yorkville of $2,000.

     

    (c) The
      Company shall issue to the Purchaser a Warrant to purchase 500,000 shares of
      the
      Company’s Common Stock for a period of five (5) years at an exercise price
      of $0.05. The shares of Common Stock issuable under the Warrant shall be
      referred to as the “Warrant
      Shares.”
      

     

    8. Conditions
      Precedent. The
      obligations of the Purchaser to purchase the Convertible Debenture shall be
      subject to the satisfaction by the Company or the following conditions
      precedent:

     

    
      	 	
              a.

            	
              The
                Company shall have executed and delivered to the Purchaser the Convertible
                Debentures and the Warrants.

            

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      	 	
              b.

            	
              The
                Company shall have provided to the Purchaser a true copy of a certificate
                of good standing evidencing the formation and good standing of the
                Company
                from the secretary of state (or comparable office) from the jurisdiction
                in which the Company is incorporated, as of a date within 10 days
                of the
                Closing Date.

            

    

     

    9. Adjustment
      to Prior Warrants.
      On the
      date hereof the exercise price of the warrant to purchase 4,500,000 shares
      of
      Common Stock originally issued to the Purchaser on August 1, 2006 (Warrant
      Number DLKR-1) shall be adjusted from $0.18 to $0.01 and the exercise price
      of
      the warrant to purchase 4,500,000 shares of Common Stock originally issued
      to
      the Purchaser on August 1, 2006 (Warrant Number DLKR-2) shall be adjusted from
      $0.27 to $0.01. 

     

    10. Acknowledgement
      Concerning Filing of the 10-KSB and amended SB-2.
       The
      Company covenants that it will file its Form 10-KSB for the period ended June
      30, 2007 with the SEC in accordance with all rules and regulations of filing
      thereunder no later than September 15, 2007. The Company acknowledges that
      the
      Purchaser is relying on the Company’s covenant related to the 10-KSB in
      purchasing the Convertible Debenture hereunder and a breach of this covenant
      shall be a default under this Agreement and the Debentures. The Company further
      covenants that is shall re-file its Form SB-2 registration statement with the
      SEC in accordance with all rules and regulations of filing thereunder no later
      than September 30, 2007

    

    REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      the
      undersigned have executed this Purchase Agreement as of the date written
      above.

     

    
      	 	 	 
	 	
              PURCHASER:
                
                YA
                  GLOBAL INVESTMENTS, L.P.

              

            
	 	 
	 	By: Yorkville
              Advisors, LLC
	 	Its:  Investment
              Advisor
	
            	
            	 
	 	By:	
            
	 	
              

              Name: Mark
                Angelo

            
	 	
              Title: Portfolio
                Manager

            

    

    
      	 	 	 
	 	 
	 	
              COMPANY:

            
	 	
              DELEK
                RESOURCES, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name: Leonard
                Sternheim

            
	 	
              Title: Chief
                Executive Officer

            

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    DISCLOSURE
      SCHEDULE

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

    FORM
      OF CONVERTIBLE DEBENTURE

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

    

    FORM
      OF WARRANT

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      I

    

    DISBURSEMENT
      INSTRUCTIONS

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              DELEK
                RESOURCES, INC.

            	YA
              Global Investments, l.p.
	 	 
	
            	By: Yorkville Advisors, LLC
	
              By:

              
                

              

            	
              Its: Investment
                Manager

            
	
              Name: Leonard
                Sternheim 

            	
              By: 

              
                

              

            
	
              Its: Chief
                Executive Officer

            	
              Name: Mark
                Angelo

            
	 	
              Its: Portfolio
                ManagerEXECUTION
            COPY

           

        

        
          Dated:
            August 17, 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. DLKR-3	
                    $90,000

                  

          

           

          DELEK
            RESOURCES, INC.

           

          Secured
            Convertible Debenture

           

          Due
            August 16, 2009

           

          This
            Secured Convertible Debenture (the “Debenture”)
            is
            issued by DELEK
            RESOURCES, INC., a
            Florida
            corporation (the “Obligor”),
            to
YA
            GLOBAL INVESTMENTS, L.P.
            (the
“Holder”),
            pursuant to that certain Purchase Agreement (the “Purchase
            Agreement”)
            of
            even date herewith. 

           

          FOR
            VALUE RECEIVED,
            the
            Obligor hereby promises to pay to the Holder or its successors and assigns
            the
            principal sum of Ninety Thousand Dollars ($90,000) together with accrued
            but
            unpaid interest on or before August 16, 2009 (the “Maturity
            Date”)
            in
            accordance with the following terms:

           

          Interest.
            Interest shall accrue on the outstanding principal balance hereof at
            an annual
            rate equal to ten percent (10%). 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 will be paid to the Holder or its
            assignee
            (as defined in Section
            5)
            in
            whose name this Debenture is registered on the records of the Obligor
            regarding
            registration and transfers of Debentures (the “Debenture
            Register”).

           

          Right
            of Redemption.
            The
            Obligor at its option shall have the right, with three (3) business days
            advance
            written notice (the “Redemption
            Notice”),
            to
            redeem a portion or all amounts outstanding under this Debenture prior
            to the
            Maturity Date provided that the Closing Bid Price of the of the Obligor’s Common
            Stock, as reported by Bloomberg, LP, is less than the Fixed Conversion
            Price at
            the time of the Redemption Notice. The Obligor shall pay an amount equal
            to the
            principal amount being redeemed plus a redemption premium (“Redemption
            Premium”)
            equal
            to twenty percent (20%) of the principal amount being redeemed, and accrued
            interest, (collectively referred to as the “Redemption
            Amount”).
            The
            Obligor shall deliver to the Holder the Redemption Amount on the third
            (3rd)
            business day after the Redemption Notice. 

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

           

          Notwithstanding
            the foregoing in the event that the Obligor has elected to redeem a portion
            of
            the outstanding principal amount and accrued interest under this Debenture
            the
            Holder shall be permitted to convert all or any portion of this Debenture
            during
            such three business day period. 

           

          Security
            Agreements.
            This
            Debenture is secured by a pledge and escrow agreement of dated August
            1, 2006
            among the Holder, Leonard Sternheim, and the Escrow Agent (the “Pledge
            Agreement”)
            and a
            Security Agreement (the “Security
            Agreement”)
            dated
            August 1, 2007 between the Obligor and the Holder and specifically a
            pledge of
            the Obligors interests pursuant to the Joint Agreement (as defined in
            the
            Purchase Agreement). 

           

          Consent
            of Holder to Sell Capital Stock or Grant Security Interests.
            So
            long
            as any of the principal amount or interest on this Debenture remains
            unpaid and
            unconverted, the Obligor shall not, without the prior consent of the
            Holder, (i)
            issue or sell any shares of Common Stock or preferred stock without
            consideration or for consideration per share less than the Closing Bid
            Price of
            the Common Stock determined immediately prior to its issuance, (ii) issue
            or
            sell any preferred stock, warrant, option, right, contract, call, or
            other
            security or instrument granting the holder thereof the right to acquire
            Common
            Stock without consideration or for consideration per share less than
            the Closing
            Bid Price of the Common Stock determined immediately prior to its issuance,
            (iii)
            enter into any security instrument granting the holder a security interest
            in
            any of the assets of the Obligor, or
            (iv)
            file any
            registration statements on Form S-8.

           

          Rights
            of First Refusal.
            For
            period of eighteen (18) months from the date hereof, so long as any portion
            of
            this Debenture is outstanding (including principal or accrued interest),
            if the
            Obligor intends to raise additional capital by the issuance or sale of
            capital
            stock of the Obligor, including without limitation shares of any class
            of Common
            Stock, any class of preferred stock, options, warrants or any other securities
            convertible or exercisable into shares of Common Stock (whether the offering
            is
            conducted by the Obligor, underwriter, placement agent or any third party)
            the
            Obligor shall be obligated to offer to the Holder such issuance or sale
            of
            capital stock, by providing in writing the principal amount of capital
            it
            intends to raise and outline of the material terms of such capital raise,
            prior
            to the offering such issuance or sale of capital stock to any third parties
            including, but not limited to, current or former officers or directors,
            current
            or former shareholders and/or investors of the obligor, underwriters,
            brokers,
            agents or other third parties. The Holder shall have ten (10) business
            days from
            receipt of such notice of the sale or issuance of capital stock to accept
            or
            reject all or a portion of such capital raising offer.

           

          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. 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 on a Conversion Date or the
            Maturity
            Date or by acceleration or otherwise);

           

          
            
              
              

            

            
              2

              
                

              

            

            
              
              

            

          

           

          (ii) The
            Obligor 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)
            hereof)
            or any Transaction Document (as defined in Section
            5)
            which
            is not cured with in the time prescribed;

           

          (iii) The
            Obligor or any subsidiary of the Obligor shall commence, or there shall
            be
            commenced against the Obligor or any subsidiary of the Obligor under
            any
            applicable bankruptcy or insolvency laws as now or hereafter in effect
            or any
            successor thereto, or the Obligor or any subsidiary of the Obligor 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 Obligor
            or any
            subsidiary of the Obligor or there is commenced against the Obligor or
            any
            subsidiary of the Obligor any such bankruptcy, insolvency or other proceeding
            which remains undismissed for a period of 61 days; or the Obligor or
            any
            subsidiary of the Obligor is adjudicated insolvent or bankrupt; or any
            order of
            relief or other order approving any such case or proceeding is entered;
            or the
            Obligor or any subsidiary of the Obligor 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 Obligor or any subsidiary of the
            Obligor
            makes a general assignment for the benefit of creditors; or the Obligor
            or any
            subsidiary of the Obligor 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
            Obligor or any subsidiary of the Obligor shall call a meeting of its
            creditors
            with a view to arranging a composition, adjustment or restructuring of
            its
            debts; or the Obligor or any subsidiary of the Obligor 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
            Obligor
            or any subsidiary of the Obligor for the purpose of effecting any of
            the
            foregoing;

           

          (iv) The
            Obligor or any subsidiary of the Obligor 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 Obligor or any subsidiary of the Obligor in an amount
            exceeding $100,000, 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 cease to be quoted for trading or listing for trading
            on
            either the Nasdaq OTC Bulletin Board (“OTCBB”),
            or if
            then listed on Nasdaq Capital Market, New York Stock Exchange, American
            Stock
            Exchange or the Nasdaq National Market (each, a “Subsequent
            Market”)
            shall
            cease to be quoted for trading or listing on such Subsequent Market and
            shall
            not again be quoted or listed for trading thereon within five (5) Trading
            Days
            of such delisting;

           

          
            
              
              

            

            
              3

              
                

              

            

            
              
              

            

          

           

          (vi) The
            Obligor or any subsidiary of the Obligor shall be a party to any Change
            of
            Control Transaction (as defined in Section
            5);

           

          (vii) The
            Obligor 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 Obligor 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 this Debenture in accordance
            with the
            terms hereof; 

           

          (viii) The
            Obligor 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;

           

          (ix) The
            occurrence of any default under the secured convertible debentures issued
            to the
            Holder in connection with the Securities Purchase Agreement (“Securities
            Purchase Agreement”)
            between the Obligor and the Holder dated August 1, 2006. 

           

          

          (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 Obligor. 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
            Obligor
            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. 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. Conversion.

           

          (a) Conversion
            at Option of Holder.

           

          (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
            5)
            (subject to the limitations on conversion set forth in Section
            3(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
            3(c)(i)).
            The
            Obligor shall deliver Common Stock certificates to the Holder prior to
            the Fifth
            (5th)
            Trading
            Day after a Conversion Date.

           

          
            
              
              

            

            
              4

              
                

              

            

            
              
              

            

          

           

          (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 OTC or on a Subsequent Market; or
            (3) the
            Obligor has failed to timely satisfy its conversion, then, at the option
            of the
            Holder, the Obligor, in lieu of delivering shares of Common Stock pursuant
            to
Section
            3(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 plus any interest due therein divided by the Conversion Price,
            chosen
            by the Holder, and multiplied by the highest closing price of the stock
            from
            date of the conversion notice till the date that such cash payment is
            made.

           

          Further,
            if the Obligor shall not have delivered any cash due in respect of conversion
            of
            this Debenture or as payment of interest thereon by the fifth (5th)
            Trading
            Day after the Conversion Date, the Holder may, by notice to the Obligor,
            require
            the Obligor to issue shares of Common Stock pursuant to Section
            3(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 Obligor 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 Obligor 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 Obligor 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.

           

          (i) A
            Holder
            may not convert this Debenture 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 4.99%
            of the
            then issued and outstanding shares of Common Stock, including shares
            issuable
            upon conversion of, and payment of interest on, this Debenture held by
            such
            Holder after application of this Section. Since the Holder will not be
            obligated
            to report to the Obligor 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 Obligor 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
            3(a)(i)
            and, at
            the option of the Holder, either retain any principal amount tendered
            for
            conversion in excess of the permitted amount hereunder for future conversions
            or
            return such excess principal amount to 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 65 days prior notice to the Obligor. Other
            Holders
            shall be unaffected by any such waiver.

           

          
            
              
              

            

            
              5

              
                

              

            

            
              
              

            

          

           

          (c) Conversion
            Price and Adjustments to Conversion Price.

           

          (i) The
            conversion price in effect on any Conversion Date shall be, at the sole
            option
            of the Holder, equal to either (a) $0.06 (the “Fixed
            Conversion Price”)
            or (b)
            ninety five percent (95%) of the lowest Volume Weighted Average Price
            of the
            Common Stock during the thirty (30) 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
            Obligor, 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 Obligor, then the Fixed 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.

           

          (iii) If
            the
            Obligor, 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 Fixed Conversion Price, then the Fixed 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 Fixed 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 Fixed
            Conversion Price pursuant to this Section, if any such right, option
            or warrant
            shall expire and shall not have been exercised, the Fixed 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 Fixed Conversion Price made pursuant
            to
            the provisions of this Section after the issuance of such rights or warrants)
            had the adjustment of the Fixed 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.

           

          
            
              
              

            

            
              6

              
                

              

            

            
              
              

            

          

           

          (iv) If
            the
            Obligor 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 Fixed 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 Fixed Conversion
            Price, such issuance shall be deemed to have occurred for less than the
            Fixed
            Conversion Price), then, at the sole option of the Holder, the Fixed
            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 Obligor 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 and exercises of options to purchase
            shares of
            Common Stock issued for compensatory purposes pursuant to any of the
            Obligor's
            stock option or stock purchase plans.

           

          (v) If
            the
            Obligor, 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 Fixed Conversion Price at which
            this
            Debenture shall thereafter be convertible shall be determined by multiplying
            the
            Fixed 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.

           

          
            
              
              

            

            
              7

              
                

              

            

            
              
              

            

          

           

          (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 Obligor 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 Obligor 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) The
            Obligor shall at all times reserve and keep available out of its authorized
            Common Stock the full number of shares of Common Stock issuable upon
            conversion
            of all outstanding amounts under this Debenture; and within three (3)
            Business
            Days following the receipt by the Obligor of a Holder's notice that such
            minimum
            number of Underlying Shares is not so reserved, the Obligor shall promptly
            reserve a sufficient number of shares of Common Stock to comply with
            such
            requirement.

           

          (viii) All
            calculations under this Section
            3
            shall be
            rounded to the nearest $0.0001 or whole share.

           

          (ix) Whenever
            the Conversion Price is adjusted pursuant to Section
            3
            hereof,
            the Obligor 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.

           

          (x) If
            (A)
            the Obligor shall declare a dividend (or any other distribution) on the
            Common
            Stock; (B) the Obligor shall declare a special nonrecurring cash dividend
            on or
            a redemption of the Common Stock; (C) the Obligor 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 Obligor shall be required in connection
            with
            any reclassification of the Common Stock, any consolidation or merger
            to which
            the Obligor is a party, any sale or transfer of all or substantially
            all of the
            assets of the Obligor, of any compulsory share exchange whereby the Common
            Stock
            is converted into other securities, cash or property; or (E) the Obligor
            shall
            authorize the voluntary or involuntary dissolution, liquidation or winding
            up of
            the affairs of the Obligor; then, in each case, the Obligor 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 Obligor, 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

              
                

              

            

            
              
              

            

          

           

          (xi) In
            case
            of any (1) merger or consolidation of the Obligor or any subsidiary of
            the
            Obligor with or into another Person, or (2) sale by the Obligor or any
            subsidiary of the Obligor of more than one-half of the assets of the
            Obligor 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
            Obligor 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 Obligor as to reservation of such shares
            set
            forth in this Debenture) be issuable (taking into account the adjustments
            and
            restrictions of Sections
            2(b) and 3(c))
            upon
            the conversion of the outstanding principal amount of this Debenture
            and payment
            of interest hereunder. The Obligor 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.

           

          
            
              
              

            

            
              9

              
                

              

            

            
              
              

            

          

           

          (ii) Upon
            a
            conversion hereunder the Obligor 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 Obligor 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.

           

          (iii) 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 Obligor 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 Obligor 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 Obligor the amount
            of
            such tax or shall have established to the satisfaction of the Obligor
            that such
            tax has been paid.

           

          (iv) 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 Obligor '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. 

           

          (v) In
            addition to any other rights available to the Holder, if the Obligor
            fails to
            deliver to the Holder such certificate or certificates pursuant to Section
            3(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 Obligor 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 Obligor
            timely
            complied with its delivery requirements under Section
            3(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 Obligor shall be required to pay the Holder $1,000. The
            Holder
            shall provide the Obligor written notice indicating the amounts payable
            to the
            Holder in respect of the Buy-In.

           

          
            
              
              

            

            
              10

              
                

              

            

            
              
              

            

          

           

          Section
            4. 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:

                  	 	
                    Delek
                      Resources, Inc.

                  
	 	 	
                    1224
                      Washington Avenue

                  
	 	 	
                    Miami
                      Beach, FL 33319

                  
	 	 	
                    Attention: Leonard
                      Sternheim

                  
	 	 	
                    Telephone: (305)
                      531-1174

                  
	 	 	
                    Facsimile: (305)
                      531-1274

                  
	 	 	 
	
                    With
                      a copy to: 

                  	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
                    If
                      to the Holder:

                  	 	
                    YA
                      Global Investments, L.P.

                  
	 	 	
                    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.

           

          
            
              
              

            

            
              11

              
                

              

            

            
              
              

            

          

           

          Section
            5. 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 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 Obligor, by contract or otherwise)
            of in
            excess of fifty percent (50%) of the voting securities of the Obligor
            (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 Obligor 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
            Obligor or any subsidiary of the Obligor in one or a series of related
            transactions with or into another entity, or (d) the execution by the
            Obligor of
            an agreement to which the Obligor is a party or by which it is bound,
            providing
            for any of the events set forth above in (a), (b) or (c).

           

          “Closing
            Bid Price”
means
            the price per share in the last reported trade of the Common Stock on
            the OTC 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, no par value, of the Obligor 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 Obligor 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.

           

          
            
              
              

            

            
              12

              
                

              

            

            
              
              

            

          

           

          “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.

           

          “Trading
            Day”
means
            a
            day on which the shares of Common Stock are quoted on the OTC or quoted
            or
            traded on such Subsequent 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 Purchase Agreement and the Securities Purchase Agreement, or any
            other
            agreement delivered in connection therewith, including, without limitation,
            the
            Pledge Agreement, the Security Agreement, the Irrevocable Transfer Agent
            Instructions, the Warrants 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, covering among other things the resale of the Underlying
            Shares and naming the Holder as a “selling stockholder” thereunder.

           

          “Volume
            Weighted Average Price”
means
            the volume weighted
            average price per share of the Company’s Common Stock on the OTC or on the
            exchange which the Common Stock is then listed as quoted by Bloomberg,
            LP.

           

          Section
            6. Except
            as
            expressly provided herein, no provision of this Debenture shall alter
            or impair
            the obligations of the Obligor, 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 Obligor. 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 Obligor 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
            7. This
            Debenture shall not entitle the Holder to any of the rights of a stockholder
            of
            the Obligor, 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 Obligor, unless
            and to
            the extent converted into shares of Common Stock in accordance with the
            terms
            hereof.

           

          
            
              
              

            

            
              13

              
                

              

            

            
              
              

            

          

           

          Section
            8. If
            this
            Debenture is mutilated, lost, stolen or destroyed, the Obligor 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
            Obligor.

           

          Section
            9. No
            indebtedness of the Obligor 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 Obligor 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 Obligor under this Debenture.

           

          Section
            10. 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
            11. If
            the
            Obligor fails to strictly comply with the terms of this Debenture, then
            the
            Obligor 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
            12. 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
            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. 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 Obligor
            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 Obligor 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 Obligor (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.

           

          
            
              
              

            

            
              14

              
                

              

            

            
              
              

            

          

           

          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
            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]

           

          
            
              
              

            

            
              15

              
                

              

            

            
              
              

            

          

          

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

           

          
            	 	 	 
	 	
                    DELEK
                      RESOURCES, INC. 

                  
	 
 	 
 	 
 
	
                  	By:  	
                  
	 	
                    

                    Name: Leonard
                      Sternheim

                  
	 	
                    Title: Chief
                      Executive Officer

                  

          

           

          
            
              
              

            

            
              16

              
                

              

            

            
              
              

            

          

           

          EXHIBIT
            “A”

           

          NOTICE
            OF CONVERSION

           

          (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 the above Debenture into Shares of Common Stock of
            Delek
            Resources, Inc., according to the conditions stated therein, as of the
            Conversion Date written below.

           

          
            	
                    Conversion
                      Date:

                  	 	 
	
                    Applicable
                      Conversion Price:

                  	 	 
	
                    Signature:

                  	 	 
	
                    Name:

                  	 	 
	
                    Address:

                  	 	 
	
                    Amount
                      to be converted:

                  	 	
                    $                         

                  
	
                    Amount
                      of Debenture unconverted:

                  	 	
                    
                      $                         

                    

                  
	
                    Conversion
                      Price per share: 

                  	 	
                    
                      $                         

                    

                  
	
                    Number
                      of shares of Common Stock to be issued:

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

                  	 	 
	
                    Issue
                      to:

                  	 	 
	
                    Authorized
                      Signature:

                  	 	 
	
                    Name:

                  	 	 
	
                    Title:

                  	 	 
	
                    Phone
                      Number:

                  	 	 
	
                    Broker
                      DTC Participant Code:

                  	 	 
	
                    Account
                      Number:

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