NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES. ANY TRANSFEREE OF THIS DEBENTURE SHOULD CAREFULLY REVIEW THE
TERMS OF THIS DEBENTURE, INCLUDING SECTIONS 3(C)(III) AND 19(A) HEREOF. THE
PRINCIPAL AMOUNT REPRESENTED BY THIS DEBENTURE AND, ACCORDINGLY, THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 3(C)(III) OF THIS DEBENTURE.

                           MAVERICK OIL AND GAS, INC.
                                    FORM OF
                          SECURED CONVERTIBLE DEBENTURE


Issuance Date:  June 21, 2006                       Principal:  U.S. $10,000,000

FOR VALUE RECEIVED, Maverick Oil and Gas, Inc., a Nevada corporation (the
"Company"), hereby promises to pay to the order of ________________________ or
registered assigns ("HOLDER") the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "PRINCIPAL") when due, whether upon the Maturity Date (as defined
below), on any Installment Date with respect to the Installment Amount due on
such Installment Date (each, as defined herein), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("INTEREST") on any outstanding Principal at a rate equal to 9.75% per annum
(the "INTEREST RATE"), from the date set out above as the Issuance Date (the
"ISSUANCE DATE") until the same becomes due and payable, whether upon an
Interest Date (as defined below), any Installment Date or, the Maturity Date,
acceleration, conversion, redemption or otherwise (in each case in accordance
with the terms hereof). This Senior Convertible Debenture (including all Senior
Convertible Debentures issued in exchange, transfer or replacement hereof, this
"DEBENTURE") is one of an issue of Senior Convertible Debentures issued pursuant
to the Securities Purchase Agreement (as defined below) on the Closing Date
(collectively, the "DEBENTURES" and such other Senior Convertible Debentures,
the "OTHER DEBENTURES"). Certain capitalized terms used herein are defined in
Section 29.

                                       1




         (1) PAYMENTS OF PRINCIPAL. On each Installment Date, the Company shall
pay to the Holder an amount equal to the Installment Amount due on such
Installment Date in accordance with Section 8. The "MATURITY DATE" shall be June
21, 2007, as may be extended at the option of the Holder (i) in the event that,
and for so long as, an Event of Default (as defined in Section 4(a)) shall have
occurred and be continuing or any event shall have occurred and be continuing
which with the passage of time and the failure to cure would result in an Event
of Default, (ii) through the date that is ten (10) days after the consummation
of a Change of Control in the event that a Change of Control is publicly
announced or a Change of Control Notice (as defined in Section 5(b)) is
delivered prior to the Maturity Date, and (iii) with respect to any Deferral
Amount the date to which payment of such amount is deferred pursuant to Section
8(d)).

         (2) INTEREST; INTEREST RATE. Interest on this Debenture shall commence
accruing on the Issuance Date and shall be computed on the basis of a 365-day
year and actual days elapsed and shall be payable in arrears for each month on
the first day of the succeeding month during the period beginning on the
Issuance Date and ending on, and including, the Maturity Date (each, an
"INTEREST DATE") with the first Interest Date being the Initial Maturity Date
(on which date Interest shall be paid for all amounts accrued for Interest Dates
prior to and including such date). Interest shall be payable on each Interest
Date, to the record holder of this Debenture on the applicable Interest Date,
and to the extent that any Principal amount of this Debenture is converted prior
to such Interest Date, accrued and unpaid Interest with respect to such
converted Principal amount and accrued and unpaid Late Charges with respect to
such Principal and Interest shall be paid through the Conversion Date (as
defined below) on the next succeeding Interest Date to the record holder of this
Debenture on the applicable Conversion Date, in cash ("CASH INTEREST") or, at
the option of the Company, in shares of Common Stock ("INTEREST SHARES") or a
combination thereof, provided that the Interest which accrued during any period
may be payable in Interest Shares if, and only if, the Company delivers written
notice (each, an "INTEREST ELECTION NOTICE") of such election to each holder of
the Debentures on or prior to the tenth (10th) Trading Day prior to the Interest
Date (each, an "INTEREST NOTICE DUE DATE"). Each Interest Election Notice must
specify the amount of Interest that shall be paid as Cash Interest, if any, and
the amount of Interest that shall be paid in Interest Shares. Interest to be
paid on an Interest Date in Interest Shares shall be paid in a number of fully
paid and nonassessable shares (rounded to the nearest whole share in accordance
with Section 3(a)) of Common Stock equal to the quotient of (a) the amount of
Interest payable on such Interest Date less any Cash Interest paid and (b) the
Interest Conversion Price in effect on the applicable Interest Date. If any
Interest Shares are to be paid on an Interest Date, then the Company shall (X)
provided that the Company's transfer agent (the "TRANSFER AGENT") is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program and such action is not prohibited by applicable law or
regulation or any applicable policy of DTC, credit such aggregate number of
Interest Shares to which the Holder shall be entitled to the Holder's or its
designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the foregoing shall not apply, issue and deliver
within three Trading Days after the applicable Interest Date, to the address set
forth in the register maintained by the Company for such purpose pursuant to the
Securities Purchase Agreement or to such address as specified by the Holder in
writing to the Company at least two Business Days prior to the applicable
Interest Date, a certificate, registered in the name of the Holder or its
designee, for the number of Interest Shares to which the Holder shall be


                                       2



entitled. Notwithstanding the foregoing, the Company shall not be entitled to
pay Interest in Interest Shares and shall be required to pay such Interest in
cash as Cash Interest on each Interest Date if, unless consented to in writing
by the Holder, during the period commencing on the applicable Interest Notice
Due Date through the applicable Interest Date, the Equity Conditions have not
been satisfied. Prior to the payment of Interest on an Interest Date, Interest
on this Debenture shall accrue at the Interest Rate. Upon the occurrence and
during the continuance of an Event of Default, the Interest Rate shall be
increased to fifteen percent (15.00%). In the event that such Event of Default
is subsequently cured, the adjustment referred to in the preceding sentence
shall cease to be effective as of the date of such cure; provided that the
Interest as calculated and unpaid at such increased rate during the continuance
of such Event of Default shall continue to apply to the extent relating to the
days after the occurrence of such Event of Default through and including the
date of cure of such Event of Default. The Company shall pay any and all taxes
that may be payable with respect to the issuance and delivery of Interest
Shares; provided that the Company shall not be required to pay any tax that may
be payable in respect of any issuance of Interest Shares to any Person other
than the Holder or with respect to any income tax due by the Holder with respect
to such Interest Shares.

         (3) CONVERSION OF DEBENTURES. On and after the date the Company files a
certificate of amendment with the Secretary of State of Nevada authorizing an
increase in the authorized shares of the Company's capital stock, this Debenture
shall be convertible into shares of the Company's common stock, par value $0.001
per share (the "COMMON STOCK"), on the terms and conditions set forth in this
Section 3.

            (a) Conversion Right. Subject to the provisions of Section 3(d), at
any time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance
with Section 3(c), at the Conversion Rate (as defined below). The Company shall
not issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount.

            (b) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) shall be
determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the "CONVERSION RATE").

               (i) "CONVERSION AMOUNT" means the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made.

               (ii) "CONVERSION PRICE" means, as of any Conversion Date (as
defined below) or other date of determination, $0.9376, subject to adjustment as
provided herein.

                                       3



            (c) Mechanics of Conversion.

               (i) Optional Conversion. To convert any Conversion Amount into
shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59
p.m., New York Time, on such date, a copy of an executed notice of conversion in
the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company
and (B) if required by Section 3(c)(iii), surrender this Debenture to a common
carrier for delivery to the Company as soon as practicable on or following such
date (or an indemnification undertaking with respect to this Debenture in the
case of its loss, theft or destruction). On or before the second (2nd) Business
Day following the date of receipt of a Conversion Notice, the Company shall
transmit by facsimile a confirmation of receipt of such Conversion Notice to the
Holder and the Transfer Agent. On or before the third (3rd) Business Day
following the date of receipt of a Conversion Notice (the "SHARE DELIVERY
DATE"), the Company shall (X) provided that the Transfer Agent is participating
in the DTC Fast Automated Securities Transfer Program, credit such aggregate
number of shares of Common Stock to which the Holder shall be entitled to the
Holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled. If this Debenture is
physically surrendered for conversion as required by Section 3(c)(iii) and the
outstanding Principal of this Debenture is greater than the Principal portion of
the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than three (3) Business Days after receipt of
this Debenture and at its own expense, issue and deliver to the holder a new
Debenture (in accordance with Section 19(d)) representing the outstanding
Principal not converted. The Person or Persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Debenture shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
the Conversion Date. In the event of a partial conversion of this Debenture
pursuant hereto, the principal amount converted shall be deducted from the
Installment Amounts relating to the Installment Dates as set forth in the
Conversion Notice.

               (ii) Company's Failure to Timely Convert. If within three (3)
Trading Days after the Company's receipt of the facsimile copy of a Conversion
Notice the Company shall fail to issue and deliver a certificate to the Holder
or credit the Holder's balance account with DTC for the number of shares of
Common Stock to which the Holder is entitled upon such holder's conversion of
any Conversion Amount (a "CONVERSION FAILURE"), and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by the Holder of Common Stock
issuable upon such conversion that the Holder anticipated receiving from the
Company (a "BUY-IN"), then the Company shall, within three (3) Business Days
after the Holder's request and in the Holder's discretion, either (i) pay cash
to the Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
"BUY-IN PRICE"), at which point the Company's obligation to deliver such
certificate (and to issue such Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates


                                       4



representing such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the Conversion Date.
If the Company complies with this Section 3(c)(ii) and makes the payments and
deliveries required by the preceding sentence, the aggregate principal amount of
this Debenture shall be reduced by the applicable Conversion Amount.

               (iii) Book-Entry. Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Debenture in accordance
with the terms hereof, the Holder shall not be required to physically surrender
this Debenture to the Company unless (A) the full Conversion Amount represented
by this Debenture is being converted or (B) the Holder has provided the Company
with prior written notice (which notice may be included in a Conversion Notice)
requesting reissuance of this Debenture upon physical surrender of this
Debenture. The Holder and the Company shall maintain records showing the
Principal, Interest and Late Charges converted and the dates of such conversions
or shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Debenture upon
conversion.

               (iv) Pro Rata Conversion; Disputes. In the event that the Company
receives a Conversion Notice from more than one holder of Debentures for the
same Conversion Date and the Company can convert some, but not all, of such
portions of the Debentures submitted for conversion, the Company, subject to
Section 3(d), shall convert from each holder of Debentures electing to have
Debentures converted on such date a pro rata amount of such holder's portion of
its Debentures submitted for conversion based on the principal amount of
Debentures submitted for conversion on such date by such holder relative to the
aggregate principal amount of all Debentures submitted for conversion on such
date. In the event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this Debenture, the
Company shall issue to the Holder the number of shares of Common Stock not in
dispute and resolve such dispute in accordance with Section 24.

            (d) Limitations on Conversions.

               (i) Beneficial Ownership. The Company shall not effect any
conversion of this Debenture, and the Holder of this Debenture shall not have
the right to convert any portion of this Debenture pursuant to Section 3(a), to
the extent that after giving effect to such conversion, the Holder (together
with the Holder's affiliates) would beneficially own in excess of 4.99% (the
"MAXIMUM PERCENTAGE") of the number of shares of Common Stock outstanding
immediately after giving effect to such conversion. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
the Holder and its affiliates shall include the number of shares of Common Stock
issuable upon conversion of this Debenture with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Debenture beneficially owned by the
Holder or any of its affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any Other Debentures or warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates. Except as set


                                       5


forth in the preceding sentence, for purposes of this Section 3(d)(i),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this Section
3(d)(i), in determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company's most recent Form 10-K, Form 10-Q or Form 8-K, as the case
may be (y) a more recent public announcement by the Company or (z) any other
notice by the Company or the Transfer Agent setting forth the number of shares
of Common Stock outstanding. For any reason at any time, upon the written or
oral request of the Holder, the Company shall within one Business Day confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including this Debenture, by the Holder or its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of Debentures.

               (ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of this Debenture
if the issuance of such shares of Common Stock would exceed the aggregate number
of shares of Common Stock which the Company may issue upon conversion or
exercise, as applicable, of the Debentures and Warrants without breaching the
Company's obligations under the rules or regulations of the Principal Market
(the "EXCHANGE CAP"), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its stockholders as required by the
applicable rules of the Principal Market for issuances of Common Stock in excess
of such amount or (B) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be reasonably
satisfactory to the Required Holders. Until such approval or written opinion is
obtained, no purchaser of the Debentures pursuant to the Securities Purchase
Agreement (the "PURCHASERS") shall be issued in the aggregate, upon conversion
or exercise, as applicable, of Debentures or Warrants, shares of Common Stock in
an amount greater than the product of the Exchange Cap multiplied by a fraction,
the numerator of which is the principal amount of Debentures issued to such
Purchaser pursuant to the Securities Purchase Agreement on the Closing Date and
the denominator of which is the aggregate principal amount of all Debentures
issued to the Purchasers pursuant to the Securities Purchase Agreement on the
Closing Date (with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In
the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser's Debentures, the transferee shall be allocated a pro rata portion of
such Purchaser's Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of Debentures shall convert all of such holder's Debentures into a number
of shares of Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining holders of Debentures on a pro rata basis in proportion to the
aggregate principal amount of the Debentures then held by each such holder.



                                       6


         (4) RIGHTS UPON EVENT OF DEFAULT.

            (a) Event of Default. Each of the following events shall constitute
an "EVENT OF DEFAULT":

               (i) the failure of the applicable Registration Statement required
to be filed pursuant to the Registration Rights Agreement to be declared
effective by the SEC on or prior to the date that is sixty (60) days after the
applicable Effectiveness Deadline (as defined in the Registration Rights
Agreement), or, while the applicable Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the applicable Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to any holder of the Debentures for sale of all of such holder's Registrable
Securities (as defined in the Registration Rights Agreement) in accordance with
the terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of twenty (20) consecutive days or for more than an
aggregate of thirty (30) days in any 365-day period (other than days during an
Allowable Grace Period (as defined in the Registration Rights Agreement));

               (ii) the suspension from trading or failure of the Common Stock
to be listed on an Eligible Market for a period of five (5) consecutive days or
for more than an aggregate of ten (10) days in any 365-day period;

               (iii) the Company's (A) failure to cure a Conversion Failure by
delivery of the required number of shares of Common Stock within ten (10)
Business Days after the applicable Conversion Date or (B) notice, written or
oral, to any holder of the Debentures, including by way of public announcement
or through any of its agents, at any time, of its intention not to comply with a
request for conversion of any Debentures into shares of Common Stock that are
tendered in accordance with the provisions of the Debentures, other than
pursuant to Section 3(d);

(iv) at any time following the tenth (10th) consecutive Business Day that the
Holder's Authorized Share Allocation is less than the Full Conversion Amount,
except as contemplated by Section 4(q) of the Securities Purchase Agreement;

               (v) the Company's failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under this
Debenture (including, without limitation, the Company's failure to pay any
redemption payments or amounts hereunder) or any other Transaction Document (as
defined in the Securities Purchase Agreement) or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated hereby and thereby to which the Holder is a party, except, in the
case of a failure to pay Interest and Late Charges when and as due, in which
case only if such failure continues for a period of at least five (5) Business
Days;

               (vi) any default occurs and is continuing under, any redemption
of or acceleration prior to maturity of any Indebtedness of the Company or any


                                       7



of its Subsidiaries (as defined in Section 3(a) of the Securities Purchase
Agreement) other than with respect to any redemption of the Other Debentures or
the Prior Debentures in accordance with their terms; provided, that in the event
that any such acceleration of indebtedness is rescinded by the holders thereof
prior to acceleration of this Debenture or the Other Debentures, no Event of
Default shall exist as a result of such rescinded acceleration;

               (vii) the Company or any of its Subsidiaries, pursuant to or
within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or
state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
makes a general assignment for the benefit of its creditors or (E) admits in
writing that it is generally unable to pay its debts as they become due;

               (viii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (A) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the
Company or any of its Subsidiaries or (C) orders the liquidation of the Company
or any of its Subsidiaries;

               (ix) a final judgment or judgments for the payment of money
aggregating in excess of $250,000 are rendered against the Company or any of its
Subsidiaries and which judgments are not, within sixty (60) days after the entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within sixty (60) days after the expiration of such stay; provided, however,
that any judgment which is covered by insurance or an indemnity from a credit
worthy party shall not be included in calculating the $250,000 amount set forth
above so long as the Company provides the Holder a written statement from such
insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company will receive the proceeds of such
insurance or indemnity within sixty (60) days of the issuance of such judgment;

               (x) the Company breaches any representation, warranty, covenant
or other term or condition of any Transaction Document, except, in the case of a
breach of a covenant or other term or condition of any Transaction Document
which is curable, only if such breach continues for a period of at least ten
(10) consecutive Business Days, and except for breaches that are not reasonably
likely to result in liability to the Company of more than $50,000 in any single
instance or $100,000 in the aggregate;

               (xi) any breach or failure in any respect to comply with any of
Sections 8, 10 or 15 of this Debenture;

               (xii) any Event of Default (as defined in the Other Debentures or
the Prior Debentures) occurs and is continuing with respect to any Other
Debentures or the Prior Debentures;

               (xiii) breach by the Company or any of its Subsidiaries of any
representation or warranty or agreement in the Security Documents, the
repudiation by the Company or any of its Subsidiaries of any of its obligations
under the Security Documents or the unenforceability of the Security Documents
against the Company or any of its Subsidiaries for any reason;

                                       8



               (xiv) breach or other failure by the Company to increase the
amount of its authorized shares of Common Stock in accordance with Section 4(q)
of the Securities Purchase Agreement;

               (xv) the Company does not take the post-closing actions set forth
in Section 3(w) of the Security Agreement; or

               (xvi) the Company's failure to enter into the Escrow Agreement
with an escrow agent reasonably acceptable to the Required Holders within thirty
(30) days after the Closing Date.

            (b) Redemption Right. Promptly after the occurrence of an Event of
Default with respect to this Debenture or any Other Debenture, the Company shall
deliver written notice thereof via facsimile and overnight courier (an "EVENT OF
DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's
receipt of an Event of Default Notice and the Holder becoming aware of an Event
of Default, the Holder may require the Company to redeem all or any portion of
this Debenture (as "EVENT OF DEFAULT Redemption") by delivering written notice
thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to the Company, which Event
of Default Redemption Notice shall indicate the portion of this Debenture the
Holder is electing to redeem; provided that upon the occurrence of any default
described in Section 4(a)(vii) and 4(a)(viii), this Debenture shall
automatically, and without any action on behalf of the Holder, be redeemed by
the Company. Each portion of this Debenture subject to redemption by the Company
pursuant to this Section 4(b) shall be redeemed by the Company at a price equal
to the greater of (i) the product of (x) the sum of the Conversion Amount to be
redeemed together with accrued and unpaid Interest with respect to such
Conversion Amount and accrued and unpaid Late Charges with respect to such
Conversion Amount and Interest and (y) the Redemption Premium and (ii) the
product of (A) the Conversion Rate with respect to such sum of the Conversion
Amount together with accrued and unpaid Interest with respect to such Conversion
Amount and accrued and unpaid Late Charges with respect to such Conversion
Amount and Interest in effect at such time as the Holder delivers an Event of
Default Redemption Notice and (B) the Closing Sale Price of the Common Stock on
the date immediately preceding such Event of Default (the "EVENT OF DEFAULT
REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 13. In the event of a partial
redemption of this Debenture pursuant hereto, the principal amount redeemed
shall be deducted from the Installment Amounts relating to the applicable
Installment Dates as set forth in the Event of Default Redemption Notice.

         (5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

            (a) Assumption. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Debenture and the other Transaction
Documents in accordance with the provisions of this Section 5(a) pursuant to
written agreements in form and substance reasonably satisfactory to the Required
Holders and approved by the Required Holders prior to such Fundamental


                                       9



Transaction, including agreements to deliver to each holder of Debentures in
exchange for such Debentures a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to the
Debentures, including, without limitation, having a principal amount and
interest rate equal to the principal amounts and the interest rates of the
Debentures held by such holder and having similar ranking to the Debentures, and
satisfactory to the Required Holders and (ii) unless the Fundamental Transaction
would result in a Change of Control and the Company complies with the provisions
of Section 5(b), the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market (a "PUBLIC SUCCESSOR ENTITY"). Upon the occurrence
of any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Debenture referring to the "Company" shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Debenture with the same effect as if such Successor Entity had been named as the
Company herein. Upon consummation of the Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Debenture at any time after the consummation of
the Fundamental Transaction, in lieu of the shares of the Company's Common Stock
(or other securities, cash, assets or other property) purchasable upon the
conversion or redemption of the Debentures prior to such Fundamental
Transaction, such shares of the publicly traded common stock (or its equivalent)
of the Successor Entity (including its Parent Entity), as adjusted in accordance
with the provisions of this Debenture; provided that, such shares need not be
publicly traded if the Fundamental Transaction would result in a Change of
Control and the Company complies with the provisions of Section 5(b). The
provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Debenture.

            (b) Redemption Right. No sooner than fifteen (15) days nor later
than ten (10) days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). At any time during the period beginning after
the Holder's receipt of a Change of Control Notice and ending on the date of the
consummation of such Change of Control (or, in the event a Change of Control
Notice is not delivered at least ten (10) days prior to a Change of Control, at
any time on or after the date which is ten (10) days prior to a Change of
Control and ending ten (10) days after the consummation of such Change of
Control), the Holder may require the Company to redeem all or any portion of
this Debenture by delivering written notice thereof ("CHANGE OF CONTROL
REDEMPTION NOTICE") to the Company, which Change of Control Redemption Notice
shall indicate the Conversion Amount the Holder is electing to redeem. The
portion of this Debenture subject to redemption pursuant to this Section 5 shall
be redeemed by the Company at a price equal to the greater of (i) the product of
(x) 125% of the sum of the Conversion Amount being redeemed together with
accrued and unpaid Interest with respect to such Conversion Amount and accrued
and unpaid Late Charges with respect to such Conversion Amount and Interest and
(y) the quotient determined by dividing (A) the Closing Sale Price of the Common
Stock immediately following the public announcement of such proposed Change of


                                       10



Control by (B) the Conversion Price and (ii) 125% of the sum of the Conversion
Amount being redeemed together with accrued and unpaid Interest with respect to
such Conversion Amount and accrued and unpaid Late Charges with respect to such
Conversion Amount and Interest (the "CHANGE OF CONTROL REDEMPTION PRICE").
Redemptions required by this Section 5 shall be made in accordance with the
provisions of Section 13 and shall have priority to payments to stockholders in
connection with a Change of Control. Notwithstanding anything to the contrary in
this Section 5, but subject to Section 3(d), until the Change of Control
Redemption Price (together with any interest thereon) is paid in full, the
Conversion Amount submitted for redemption under this Section 5(b) (together
with any interest thereon) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 3. In the event of a partial redemption of
this Debenture pursuant hereto, the principal amount redeemed shall be deducted
from the Installment Amounts relating to the applicable Installment Dates as set
forth in the Change of Control Redemption Notice.

         (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

            (a) Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "PURCHASE RIGHTS"), then, to the extent it has not received
such Purchase Right as a result of the provisions of Section 16 of this
Debenture, the Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Debenture (without taking into account any
limitations or restrictions on the convertibility of this Debenture) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.

            (b) Other Corporate Events. In addition to and not in substitution
for any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision
to ensure that the Holder will thereafter have the right to receive upon a
conversion of this Debenture, (i) in addition to the shares of Common Stock, if
any, receivable upon such conversion, such securities or other assets to which
the Holder would have been entitled with respect to such shares of Common Stock
had such shares of Common Stock been held by the Holder upon the consummation of
such Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Debenture) or (ii) in lieu of the
shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Debenture initially been
issued with conversion rights for the form of such consideration (as opposed to
shares of Common Stock) at a conversion rate for such consideration commensurate
with the Conversion Rate. Provision made pursuant to the preceding sentence
shall be in a form and substance satisfactory to the Required Holders. The
provisions of this Section shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of this Debenture.

                                       11



         (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

            (a) Adjustment of Conversion Price upon Issuance of Common Stock. If
and whenever on or after the Subscription Date, the Company issues or sells, or
in accordance with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued or sold by the Company in connection
with any Excluded Security) for a consideration per share (the "NEW ISSUANCE
PRICE") less than a price (the "APPLICABLE PRICE") equal to the Conversion Price
in effect immediately prior to such issue or sale (the foregoing a "DILUTIVE
ISSUANCE"), then immediately after such Dilutive Issuance the Conversion Price
then in effect shall be reduced to an amount equal to the New Issuance Price.
For purposes of determining the adjusted Conversion Price under this Section
7(a), the following shall be applicable:

               (i) Issuance of Options. If the Company in any manner grants or
sells any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange or exercise of any Convertible Securities issuable upon exercise of
such Option is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 7(a)(i), the "lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon granting or sale of the Option,
upon exercise of the Option and upon conversion or exchange or exercise of any
Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange or exercise of such Convertible Securities.

               (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
or exercise thereof is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share. For the purposes of this Section 7(a)(ii), the "price per
share for which one share of Common Stock is issuable upon such conversion or
exchange or exercise" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the issuance or sale of the Convertible Security
and upon the conversion or exchange or exercise of such Convertible Security. No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock upon conversion or exchange or exercise of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of this
Section 7(a), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.

                                       12



               (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 7(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
Subscription Date are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No adjustment shall be
made if such adjustment would result in an increase of the Conversion Price then
in effect.

               (iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.001. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such securities on the
date of receipt. If any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the Required Holders. The determination of such appraiser shall
be deemed binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Company.

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

                                       13



            (b) Adjustment of Conversion Price upon Subdivision or Combination
of Common Stock. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time on or
after the Subscription Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased.

            (c) Other Events. If any event occurs of the type contemplated by
the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Debenture;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

         (8) COMPANY INSTALLMENT CONVERSION OR REDEMPTION.

            (a) General. On each applicable Installment Date, the Company shall
pay to the Holder of this Debenture the Installment Amount as of such
Installment Date by the combination of any of the following, but subject to and
in accordance with the terms of this Section 8, (i) provided that during the
period commencing with the Company Installment Notice (as defined below) through
the applicable Installment Date, the Equity Conditions have been satisfied (or
waived in writing by the Holder), by requiring the conversion of a portion of
the applicable Installment Amount, in whole or in part, in accordance with this
Section 8 (a "COMPANY CONVERSION"), and/or (ii) by redeeming the applicable
Installment Amount, in whole or in part, in accordance with this Section 8 (a
"COMPANY REDEMPTION"); provided that all of the outstanding applicable
Installment Amount as of each such Installment Date must be converted and/or
redeemed by the Company on the applicable Installment Date, subject to the
provisions of this Section 8. Notwithstanding the foregoing, the Company may not
effect a Company Conversion under this Section in excess of 22.5% of the
aggregate dollar trading volume (as reported on Bloomberg) of the Common Stock
on the Principal Market over the twenty (20) consecutive Trading Day period
prior to the applicable Installment Notice Due Date. In the event that the any
required stockholder approval has not been obtained prior to any Installment
Notice Due Date (as hereinafter defined), the Company shall pay the applicable
Installment Amount in cash by way of a Company Redemption. On or prior to the
date which is the sixth (6th) Trading Day prior to each Installment Date (each,
an "INSTALLMENT NOTICE DUE DATE"), the Company shall deliver written notice
(each, a "COMPANY INSTALLMENT NOTICE"), to the Holder which Company Installment
Notice shall state (i) the portion, if any, of the applicable Installment Amount
which the Company elects to convert pursuant to a Company Conversion, which
amount when added to the Company Redemption Amount must equal the applicable
Installment Amount (the "COMPANY CONVERSION AMOUNT"), (ii) the portion, if any,
of the applicable Installment Amount which the Company elects to redeem pursuant
to a Company Redemption (the "COMPANY REDEMPTION AMOUNT"), which amount when


                                       14



added to the Company Conversion Amount must equal the applicable Installment
Amount, and (iii) if the Company has elected, in whole or in part, a Company
Conversion, then the Company Installment Notice shall certify that the Equity
Conditions have been satisfied as of the date of the Company Installment Notice.
Each Company Installment Notice shall be irrevocable. If the Company does not
timely deliver a Company Installment Notice in accordance with this Section 8,
then the Company shall be deemed to have delivered an irrevocable Company
Installment Notice electing a Company Redemption. Except as expressly provided
in this Section 8(a), the Company shall redeem and convert the applicable
Installment Amount of this Debenture pursuant to this Section 8 and the
corresponding Installment Amounts of the Other Debentures pursuant to the
corresponding provisions of the Other Debentures in the same ratio of the
Installment Amount being redeemed and converted hereunder. The Company
Redemption Amount shall be redeemed in accordance with Section 8(b) and the
Company Conversion Amount (whether set forth in the Company Installment Notice
or by operation of this Section 8) shall be converted in accordance with Section
8(c).

            (b) Mechanics of Company Redemption. If the Company elects a Company
Redemption in accordance with Section 8(a), then the Company Redemption Amount,
if any, which is to be paid to the Holder on the applicable Installment Date
shall be redeemed by the Company on such Installment Date, and the Company shall
pay to the Holder on such Installment Date, by wire transfer of immediately
available funds, an amount in cash (the "COMPANY INSTALLMENT REDEMPTION PRICE")
equal to 100% of the Company Redemption Amount. If the Company fails to redeem
the Company Redemption Amount on the applicable Installment Date by payment of
the Company Installment Redemption Price on such date, then at the option of the
Holder designated in writing to the Company (any such designation, "CONVERSION
NOTICE" for purposes of this Debenture), the Holder may require the Company to
convert all or any part of the Company Redemption Amount at the Company
Conversion Price. Conversions required by this Section 8(b) shall be made in
accordance with the provisions of Section 3(c). Notwithstanding anything to the
contrary in this Section 8(b), but subject to Section 3(d), until the Company
Installment Redemption Price (together with any interest thereon) is paid in
full in cash, the Company Redemption Amount (together with any interest thereon)
may be converted, in whole or in part, by the Holder into Common Stock pursuant
to Section 3. In the event the Holder elects to convert all or any portion of
the Company Redemption Amount prior to the applicable Installment Date as set
forth in the immediately preceding sentence, the Company Redemption Amount so
converted shall be deducted from the Installment Amounts relating to the
applicable Installment Dates as set forth in the applicable Conversion Notice.

            (c) Mechanics of Company Conversion.

               (i) If the Company pays any part of an Installment Amount
pursuant to a Company Conversion in accordance with Section 8(a), then, (A) if
the Transfer Agent is participating in the DTC Fast Automated Securities
Transfer Program, on the Installment Date or (B) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, within
three Trading Days after the Installment Date, the Company shall, or shall cause


                                       15



the Transfer Agent to, issue to the Holder, for delivery on the Trading Day
immediately prior to the Installment Date (or within three Trading Days after
the Installment Date, as applicable), to the Holder's account with DTC (or issue
and deliver within three Trading Days after the Installment Date, to the address
set forth in the register maintained by the Company for such purpose pursuant to
the Securities Purchase Agreement or to such address as specified by the Holder
in writing to the Company at least two Business Days prior to such date, a
certificate, registered in the name of the Holder or its designee, for) a number
of shares of Common Stock equal to the quotient of (x) such Company Conversion
Amount with respect to such amount divided by (y) the Initial Company Conversion
Price (the "PRE-INSTALLMENT CONVERSION SHARES"), rounded to the nearest whole
share of Common Stock. On (A) the first (1st) Trading Day following the end of
the Company Conversion Measuring Period, if the Transfer Agent is participating
in the DTC Fast Automated Securities Transfer Program or (B) the third Trading
Day after the end of the Company Conversion Measuring Period if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer Program
(such applicable date, the "INSTALLMENT SETTLEMENT DATE"), the Company shall, or
shall cause the Transfer Agent to, deliver to the Holder's account with DTC (or
issue and deliver by such date, to the address set forth in the register
maintained by the Company for such purpose pursuant to the Securities Purchase
Agreement or to such address as specified by the Holder in writing to the
Company at least two Business Days prior to such date, a certificate, registered
in the name of the Holder or its designee, for) a number of additional
Conversion Shares, if any, equal to the Installment Balance Conversion Shares.
If an Event of Default occurs during any applicable Company Conversion Measuring
Period and the Holder elects an Event of Default Redemption in accordance with
Section 4(b), then, the Holder shall receive the Event of Default Redemption
Price with respect to a principal amount which shall include the last
Installment Amount less the Installment Amount Deemed Paid.

               (ii) Subject to the provisions of the following sentence, if the
Company elects a Company Conversion and an Equity Conditions Failure occurs
following the date of the Company Installment Notice and the Installment
Settlement Date, then the Holder shall receive the Installment Amount less the
Installment Amount Deemed Paid. If the Company fails to redeem any First
Redemption Amount on or before the applicable Installment Date or Installment
Settlement Date, as applicable, by payment of such amount on the applicable
Installment Date or Installment Settlement Date, as applicable, then the Holder
shall have the rights set forth in Section 13(a) as if the Company failed to pay
the applicable Company Redemption Price and all other rights under this
Debenture (including, without limitation, such failure constituting an Event of
Default described in Section 4(a)(xi)). Notwithstanding anything to the contrary
in this Section 8(c), but subject to Section 3(d), until the Company delivers
shares of Common Stock representing the Company Conversion Amount to the Holder,
the Company Conversion Amount may be converted by the Holder into shares of
Common Stock pursuant to Section 3. In the event that the Holder elects to
convert the Company Conversion Amount prior to the applicable Installment Date
as set forth in the immediately preceding sentence, the Company Conversion
Amount so converted shall be deducted from the Installment Amounts relating to
the applicable Installment Dates as set forth in the applicable Conversion
Notice.

               (iii) If, in connection with any Company Conversion, the Company
is unable to issue at the applicable Unadjusted Company Conversion Price all the
shares of Common Stock that, but for the application of the Exchange Cap, the
Company would have been required to issue, then (A) the Company shall deliver to
the Holder shares of Common Stock in accordance with Section 8(c)(i) and (B) the


                                       16



Company shall pay to the Holder in cash, within five (5) Trading Days of the
applicable Installment Settlement Date, an amount equal to the product of (1)
the number of Exchange Cap Limitation Shares applicable to such Installment
Settlement Date and (2) the excess (if any) of (x) the Adjusted Company
Conversion Price over (y) the Conversion Price (the "COMPANY CONVERSION
MAKE-WHOLE"). Notwithstanding the foregoing, in connection with such Company
Conversion, if the Company is prohibited, pursuant to the rules and regulations
of any applicable Principal Market, to effect a Company Conversion by both the
delivery by the Company to the Holder of shares of Common Stock and the payment
by the Company of the Company Conversion Make-Whole in cash, then (1) the
Company shall pay to the Holder, in cash, on the Installment Settlement Date, an
amount equal to the product of (A) the number of Exchange Cap Limitation Shares
applicable to such Installment Settlement Date multiplied by (B) such Adjusted
Company Conversion Price and upon such payment the Company's and the Company's
obligations to such Holder with respect to such Company Conversion shall be
deemed to be fully satisfied (the "EXCHANGE CAP INSTALLMENT PAYMENT"), and (2)
such Holder shall return to the Company on or before such Installment Settlement
Date any shares of Common Stock issued to such Holder by the Company in
connection with such Company Conversion; provided that in the event that the
Holder cannot return any such shares of Common Stock to the Company, the Company
shall pay to the Holder, in lieu of the foregoing, an amount in cash equal to
the difference between (x) the Exchange Cap Installment Payment and (y) the
product of (I) the number of Pre-Installment Conversion Shares issued to the
Holder multiplied by (II) the applicable Unadjusted Initial Company Conversion
Price.

            (d) Deferred Installment Amount. Notwithstanding any provision of
this Section 8 to the contrary, the Holder may, at its option and in its sole
discretion, deliver a notice to the Company at least five (5) Trading Days prior
to any applicable Installment Date electing to have all or any portion of the
Installment Amount payable on such Installment Date deferred (such amount, the
"DEFERRAL AMOUNT"). Any notice delivered by the Holder pursuant to this Section
8(d) shall set forth (A) the Deferral Amount and (B) the date such Deferral
Amount shall now be payable, which date shall be a date selected by such Holder
not to exceed twenty four (24) months from the date of the original Installment
Date, and provided that no more than three Installment Amounts may be deferred
to any one date pursuant to this Section 8(d).

         (9) COMPANY'S RIGHT OF MANDATORY CONVERSION.

            (a) Mandatory Conversion. If at any time from and after the
Effective Date (as defined in the Registration Rights Agreement) (the "MANDATORY
CONVERSION ELIGIBILITY DATE"), (i) the Closing Sale Price of the Common Stock
for each Trading Day of any five (5) consecutive Trading Day period following


                                       17



the applicable Mandatory Conversion Eligibility Date (the "MANDATORY CONVERSION
MEASURING PERIOD") equals or exceeds 125% of the Conversion Price on the Closing
Date (subject to appropriate adjustments for stock splits, stock dividends,
stock combinations and other similar transactions after the Subscription Date),
(ii) the Equity Conditions shall have been satisfied (or waived in writing by
the Holder) during the period commencing on the Mandatory Conversion Notice Date
through the applicable Mandatory Conversion Date (each, as defined below) and
(iii) at the time of, or prior to, any exercise of the Company's rights under
this Section 9(a), the Deposit Amount (as defined below) shall have been
deposited into the Escrow Account (as defined below), the Company shall have the
right to require the Holder to convert up to that portion of the Principal
amount of this Debenture, subject to Section 9(b) below, equal to no more than
(when aggregated together with the conversion of all Other Debentures pursuant
to Section 9(a) of such Other Debentures) 25% of the dollar trading volume of
the Company's Common Stock for the previous 20 consecutive Trading Days, as
designated in the Mandatory Conversion Notice (as defined below) into fully
paid, validly issued and nonassessable shares of Common Stock in accordance with
Section 3(c) hereof at the Conversion Rate as of the Mandatory Conversion Date
(as defined below) (a "MANDATORY CONVERSION") (provided, that for purposes of
applying Section 3(c) as required by this sentence, the "Conversion Notice"
shall be deemed to the "Mandatory Conversion Notice"). The Company may exercise
its right to require conversion under this Section 9(a) by delivering within not
more than five (5) Trading Days after the end of the Mandatory Conversion
Measuring Period, (i) a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Debentures and the
Transfer Agent (the "MANDATORY CONVERSION NOTICE", and the date all of the
holders received such notice by facsimile is referred to as the "MANDATORY
CONVERSION NOTICE DATE") and (ii) Additional Warrants. The Mandatory Conversion
Notice shall be irrevocable. The Mandatory Conversion Notice shall state (i) the
Trading Day selected for the Mandatory Conversion in accordance with Section
9(a), which Trading Day shall be at least twenty (20) Business Days but not more
than sixty (60) Business Days following the end of the Mandatory Conversion
Notice Date (the "MANDATORY CONVERSION DATE"), (ii) the aggregate Conversion
Amount of the Debentures subject to mandatory conversion from the Holder and all
of the holders of the Other Debentures pursuant to this Section 9 (and analogous
provisions under the Other Debentures) and (iii) the number of shares of Common
Stock to be issued to such Holder on the Mandatory Conversion Date. Any shares
of Common Stock delivered in connection with a Mandatory Conversion hereunder
shall be accompanied by any accrued and unpaid Interest with respect to such
Conversion Amount subject to such Mandatory Conversion and accrued and unpaid
Late Charges with respect to such Conversion Amount and Interest.

            (b) Pro Rata Conversion Requirement. If the Company elects to cause
a conversion of any Conversion Amount of this Debenture pursuant to Section
9(a), then it must simultaneously take the same action in the same proportion
with respect to the Other Debentures. All Conversion Amounts converted by the
Holder after the Mandatory Conversion Notice Date shall reduce the Conversion
Amount of this Debenture required to be converted on the Mandatory Conversion
Date. If the Company has elected a Mandatory Conversion, the mechanics of
conversion set forth in Section 3(c) shall apply, to the extent applicable, as
if the Company and the Transfer Agent had received from the Holder on the
Mandatory Conversion Date a Conversion Notice with respect to the Conversion
Amount being converted pursuant to the Mandatory Conversion.

         (10) HOLDER'S RIGHTS OF OPTIONAL REDEMPTION.

            (a) At any time after the Effective Date (as defined in the
Registration Rights Agreement), the Holder shall have the right, in its sole
discretion, to require that the Company redeem up to an amount equal to the
product of (X) the number of shares of Common Stock that is 20% of the aggregate
trading volume (as reported by Bloomberg) of the Common Stock over the prior
twenty (20) Trading Day period, multiplied by (Y) the Holder Optional Redemption


                                       18



Price (the "OPTIONAL REDEMPTION AMOUNT") by delivering written notice thereof (a
"HOLDER OPTIONAL REDEMPTION NOTICE") to the Company. The Holder Optional
Redemption Notice shall indicate (i) the Optional Redemption Amount and (ii) the
date of such redemption (the "OPTIONAL REDEMPTION EXERCISE DATE"); provided,
however, that such Optional Redemption Exercise Date shall not be less than ten
(10) Business Days after the date of delivery of such Holder Optional Redemption
Notice. The Company shall have the option to redeem the Optional Redemption
Amount in cash (a "HOLDER OPTIONAL CASH REDEMPTION") and/or in Common Stock (a
"HOLDER OPTIONAL COMMON STOCK CONVERSION"). Within two (2) Business Days of the
date of the Holder Optional Redemption Notice, the Company shall respond (such
response, the "COMPANY OPTIONAL REDEMPTION RESPONSE NOTICE") to the Holder
Optional Redemption Notice and notify the Holder of (i) the portion, if any, of
the applicable Optional Redemption Amount which the Company elects to convert
pursuant to a Holder Optional Common Stock Conversion, which amount when added
to the Holder Optional Cash Redemption Amount must equal the applicable Optional
Redemption Amount (the "HOLDER OPTIONAL COMMON STOCK CONVERSION AMOUNT"), (ii)
the portion, if any, of the applicable Optional Redemption Amount which the
Company elects to redeem pursuant to a Holder Optional Cash Redemption (the
"HOLDER OPTIONAL CASH REDEMPTION AMOUNT"), which amount when added to the Holder
Optional Common Stock Conversion Amount must equal the applicable Optional
Redemption Amount and (iii) if the Company has elected, in whole or in part, a
Holder Optional Common Stock Conversion, then the Company Optional Redemption
Response Notice shall certify that the Equity Conditions have been satisfied as
of the date of the Company Optional Redemption Response Notice. The portion of
this Debenture subject to redemption pursuant to this Section 10 shall be
redeemed by the Company on the applicable Optional Redemption Date in either
cash at a price equal to the Holder Optional Cash Redemption Amount being
redeemed (the "HOLDER OPTIONAL CASH REDEMPTION PRICE") or in Common Stock in an
amount equal to the Holder Optional Common Stock Conversion Amount.

            (b) Mechanics of a Holder Optional Cash Redemption. If the Company
elects a Holder Optional Cash Redemption in accordance with Section 10(a), then
the Holder Optional Cash Redemption Amount which is to be paid to the Holder on
the applicable Optional Redemption Exercise Date shall be redeemed by the
Company on such Optional Redemption Exercise Date, and the Company shall pay to
the Holder on such Optional Redemption Exercise Date, by wire transfer of
immediately available funds, an amount in cash equal to 100% of the Holder
Optional Cash Redemption Price. If the Company fails to redeem the Holder
Optional Cash Redemption Amount on the applicable Optional Redemption Exercise
Date by payment of the Holder Optional Cash Redemption Price on such date, then
at the option of the Holder designated in writing in a Conversion Notice to the
Company, the Holder may require the Company to convert all or any part of the
Holder Optional Cash Redemption Amount at the Holder Optional Redemption Price.
Conversions required by this Section 10(b) shall be made in accordance with the
provisions of Section 3(c). Notwithstanding anything to the contrary in this
Section 10(b), but subject to Section 3(d), until the Holder Optional Cash
Redemption Price (together with any interest thereon) is paid in full, the
Holder Optional Cash Redemption Amount (together with any interest thereon) may
be converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3.

            (c) Mechanics of a Holder Optional Common Stock Conversion. Subject
to Section 3(d), if the Company delivers a Company Optional Redemption Response
Notice and elects, or is deemed to have elected, in whole or in part, a Holder
Optional Common Stock Conversion in accordance with Section 10(a), then the
applicable Holder Optional Common Stock Conversion Amount shall be converted as


                                       19



of the applicable Optional Redemption Exercise Date by converting on such
Optional Redemption Exercise Date such Holder Optional Common Stock Conversion
Amount at the Holder Optional Redemption Price; provided that the Equity
Conditions have been satisfied (or waived in writing by the Holder) on such
Optional Redemption Exercise Date. If the Equity Conditions are not satisfied
(or waived in writing by the Holder) on such Optional Redemption Exercise Date,
then at the option of the Holder designated in writing to the Company, the
Holder may require the Company to do any one or more of the following: (i) the
Company shall redeem all or any part designated by the Holder of the unconverted
Holder Optional Common Stock Conversion Amount (such designated amount is
referred to as the "COMMON STOCK OPTIONAL REDEMPTION AMOUNT") on such Optional
Redemption Exercise Date and the Company shall pay to the Holder on such
Optional Redemption Exercise Date, by wire transfer of immediately available
funds, an amount in cash equal to such Common Stock Optional Redemption Amount
or (ii) the Holder Optional Common Stock Conversion shall be null and void with
respect to all or any part designated by the Holder of the unconverted Holder
Optional Common Stock Conversion Amount and the Holder shall be entitled to all
the rights of a holder of this Debenture with respect to such amount of the
Holder Optional Common Stock Conversion Amount; provided, however, that the
Conversion Price for such unconverted Holder Optional Common Stock Conversion
Amount shall thereafter be adjusted to equal the lesser of (A) the Holder
Optional Redemption Price as in effect on the date on which the Holder voided
the Holder Optional Common Stock Conversion (calculated based on the immediately
preceding five (5) consecutive Trading Days) and (B) the Holder Optional
Redemption Price as in effect on the date on which the Holder delivers a Holder
Optional Redemption Notice relating thereto. If the Company fails to redeem any
Common Stock Optional Redemption Amount on or before the applicable Optional
Redemption Exercise Date by payment of such amount on the applicable Optional
Redemption Exercise Date, then the Holder shall have the rights set forth in
Section 13(a) as if the Company failed to pay the applicable Company Redemption
Price and all other rights under this Debenture (including, without limitation,
such failure constituting an Event of Default described in Section 4(a)(xi)).
Notwithstanding anything to the contrary in this Section 10(c), but subject to
Section 3(d), until the Company delivers Common Stock representing the Holder
Optional Common Stock Conversion Amount to the Holder, the Holder Optional
Common Stock Conversion Amount may be converted by the Holder into Common Stock
pursuant to Section 3.

         (11) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Debenture, and will at all times in good faith carry out all of the
provisions of this Debenture and take all action as may be required to protect
the rights of the Holder of this Debenture.

         (12) RESERVATION OF AUTHORIZED SHARES.

            (a) Reservation. No later than the Stockholder Approval Deadline (as
defined in the Securities Purchase Agreement), the Company shall reserve out of
its authorized and unissued Common Stock a number of shares of Common Stock for
each of the Debentures equal to 100% of the Conversion Rate with respect to the
Conversion Amount of each such Debenture as of the Issuance Date and so long as


                                       20



any of the Debentures are outstanding, the Company shall take all action
necessary to reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Debentures, 100% of the number of shares of Common Stock as shall from time to
time be necessary to effect the conversion of all of the Debentures then
outstanding pursuant to Sections 2 and 3; provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number
of shares of Common Stock reserved for conversions of the Debentures and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Debentures based on the principal amount of the Debentures
held by each holder at the Closing (as defined in the Securities Purchase
Agreement) or increase in the number of reserved shares, as the case may be (the
"AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or
otherwise transfer any of such holder's Debentures, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person which ceases to hold
any Debentures shall be allocated to the remaining holders of Debentures, pro
rata based on the principal amount of the Debentures then held by such holders.

            (b) Insufficient Authorized Shares. If at any time on and after the
Stockholder Approval Deadline while any of the Debentures remain outstanding the
Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance upon conversion
of the Debentures at least a number of shares of Common Stock equal to the
Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall
immediately take all action necessary to increase the Company's authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the Debentures then outstanding. Without
limiting the generality of the foregoing sentence and except as contemplated by
Section 4(q) of the Securities Purchase Agreement, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized Share Failure, the
Company shall hold a meeting of its stockholders for the approval of an increase
in the number of authorized shares of Common Stock. In connection with such
meeting, the Company shall provide each stockholder with a proxy statement and
shall use its best efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.

         (13) HOLDER'S REDEMPTIONS.

            (a) Mechanics. The Company shall deliver the applicable Event of
Default Redemption Price to the Holder within five Business Days after the
Company's receipt of the Holder's Event of Default Redemption Notice. The
Company shall deliver the applicable Asset Sale Redemption Price to the Holder
within one Business Day after the Company's receipt of the Holder's Asset Sale
Redemption Notice. The Company shall deliver the applicable Barnett Shale
Property Sale Redemption Price to the Holder within five Business Days after the
Company's receipt of the Holder's Barnett Shale Property Sale Redemption Notice.
The Company shall deliver the applicable amounts due pursuant to a redemption
under Section 15(e)(ii)(C) or (D) to the Holder within two Business Days after


                                       21



the Company's receipt of the Holder's notice of election thereof. If the Holder
has submitted a Change of Control Redemption Notice in accordance with Section
5(b), the Company shall deliver the applicable Change of Control Redemption
Price to the Holder concurrently with the consummation of such Change of Control
if such notice is received prior to the consummation of such Change of Control
and within five (5) Business Days after the Company's receipt of such notice
otherwise. The Company shall deliver the applicable Company Installment
Redemption Price to the Holder on the applicable Installment Date. In the event
of a redemption of less than all of the Conversion Amount of this Debenture, the
Company shall promptly cause to be issued and delivered to the Holder a new
Debenture (in accordance with Section 19(d)) representing the outstanding
Principal which has not been redeemed. In the event that the Company does not
pay the applicable Redemption Price to the Holder within the time period
required, at any time thereafter and until the Company pays such unpaid
Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any
portion of this Debenture representing the Conversion Amount that was submitted
for redemption and for which the applicable Redemption Price (together with any
Late Charges thereon) has not been paid. Upon the Company's receipt of such
notice, (x) the applicable Redemption Notice shall be null and void with respect
to such Conversion Amount, (y) the Company shall immediately return this
Debenture, or issue a new Debenture (in accordance with Section 19(d)) to the
Holder representing the sum of such Conversion Amount to be redeemed together
with accrued and unpaid Interest with respect to such Conversion Amount and
accrued and unpaid Late Charges with respect to such Conversion Amount and
Interest and (z) the Conversion Price of this Debenture or such new Debentures
shall be adjusted to the lesser of (A) the Conversion Price as in effect on the
date on which the applicable Redemption Notice is voided and (B) the lowest
Closing Bid Price of the Common Stock during the period beginning on and
including the date on which the applicable Redemption Notice is delivered to the
Company and ending on and including the date on which the applicable Redemption
Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice
and exercise of its rights following such notice shall not affect the Company's
obligations to make any payments of Late Charges which have accrued prior to the
date of such notice with respect to the Conversion Amount subject to such
notice.

            (b) Redemption by Other Holders. Upon the Company's receipt of
notice from any of the holders of the Other Debentures or the Prior Debentures
for redemption or repayment as a result of an event or occurrence substantially
similar to the events or occurrences described in Section 4(b), Section 5(b) or
Section 10 or Section 15 (each, an "OTHER REDEMPTION NOTICE"), the Company shall
immediately forward to the Holder by facsimile a copy of such notice. If the
Company receives a Redemption Notice and one or more Other Redemption Notices,
during the seven (7) Business Day period beginning on and including the date
which is three (3) Business Days prior to the Company's receipt of the Holder's
Redemption Notice and ending on and including the date which is three (3)
Business Days after the Company's receipt of the Holder's Redemption Notice and
the Company is unable to redeem all principal, interest and other amounts
designated in such Redemption Notice and such Other Redemption Notices received
during such seven (7) Business Day period, then the Company shall redeem a pro
rata amount from each holder of the Debentures (including the Holder) based on
the principal amount of the Debentures submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the Company
during such seven Business Day period.

                                       22



         (14) VOTING RIGHTS. The Holder shall have no voting rights as the
holder of this Debenture, except as required by law, including, but not limited
to, the General Corporation Law of the State of Nevada, and as expressly
provided in this Debenture.

         (15) COVENANTS.

            (a) Rank. All payments due under this Debenture (a) shall rank pari
passu with all Other Debentures and with the Prior Debentures and (b) shall be
senior in right of payment to all other Indebtedness of the Company and its
Subsidiaries.

            (b) Incurrence of Indebtedness. So long as this Debenture is
outstanding, the Company shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to
exist any Indebtedness, other than (i) the Indebtedness evidenced by this
Debenture and the Other Debentures, (ii) the Indebtedness evidenced by the Prior
Debentures, (iii) Permitted Indebtedness and (iv) up to $50,000,000 in the
aggregate of Indebtedness that is junior or pari passu to the Indebtedness
evidenced by this Debenture and the Other Debentures; provided, in the case of
(iv), that the Company has previously deposited the Deposit Amount into the
Escrow Account.

            (c) Existence of Liens. So long as this Debenture is outstanding,
the Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "LIENS") other than Permitted Liens and Liens
securing the Prior Debentures.

            (d) Restricted Payments. The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly,

               (i) declare or pay any dividend or make any other payment or
distribution on account of the Company's Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company) or to the direct or indirect holders of the Company's Equity
Interests in their capacity as such, other than as required under the Warrants
or the warrants issued in connection with the Prior Debentures;

               (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company, other than as required under the Warrants or the
warrants issued in connection with the Prior Debentures; or

               (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness of the
Company, except a payment of interest or principal at the stated maturity
thereof and except for payments of principal, interest and other amounts under
the Other Debentures and under the Prior Debentures.

                                       23



            (e) Asset Sales; Barnett Shale Property Sale.

               (i) Except as provided in clause (ii) below, the Company shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly,
consummate any Asset Sale unless:

                     (A) the Company (or the applicable Subsidiary, as the case
may be) receives consideration at the time of the Asset Sale at least equal to
the fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of; and

                     (B) at least 85% of the consideration received in the Asset
Sale by the Company or such Subsidiary is in the form of cash.

         Promptly after the occurrence of an Asset Sale, the Company shall
deliver written notice thereof via facsimile and overnight courier (an "ASSET
SALE NOTICE") to the Holder. At any time after receipt of such Asset Sale
Notice, the Holder may require the Company to redeem with the cash proceeds of
such Asset Sale all or any portion of this Debenture by delivering written
notice thereof (the "ASSET SALE REDEMPTION NOTICE") to the Company, which Asset
Sale Redemption Notice shall indicate the portion of this Debenture the Holder
is electing to redeem; provided that if the aggregate principal amount of
Debentures, Other Debentures and Prior Debentures to be redeemed with the cash
proceeds of an Asset Sale exceed the amount of cash proceeds received from such
Asset Sale, the Company shall redeem this Debenture and Other Debentures and the
Prior Debentures on a pro rata basis with such proceeds. Each portion of this
Debenture subject to redemption by the Company pursuant to this Section 15(e)
shall be redeemed by the Company at a price equal the product of (A) the
Conversion Rate with respect to such sum of the Conversion Amount together with
accrued and unpaid Interest with respect to such Conversion Amount and accrued
and unpaid Late Charges with respect to such Conversion Amount and Interest in
effect at such time as the Holder delivers the Asset Sale Redemption Notice and
(B) the greater of (1) the Closing Sale Price and (2) the then applicable
Conversion Price of the Common Stock on the date immediately preceding the date
on which the Holder delivers the Asset Sale Redemption Notice (the "ASSET SALE
REDEMPTION PRICE"). Redemptions required by this Section 15(e) shall be made in
accordance with the provisions of Section 13. In the event of a partial
redemption of this Debenture pursuant hereto, the principal amount redeemed
shall be deducted from the Installment Amounts relating to the applicable
Installment Dates as set forth in the Asset Sale Redemption Notice.

               (ii)  (A) The Company shall use its best efforts to consummate a
sale of the Barnett Shale Property (a "BARNETT SHALE PROPERTY SALE") on or prior
to (i) December 31, 2006 (the "FIRST SALE DEADLINE") and (ii) March 31, 2007
(the "SECOND SALE DEADLINE") at a purchase price that a nationally recognized
independent investment bank or a comparable organization satisfactory to the
Required Holders and the Company determines, in a written opinion delivered to
the Holder (a "BANK OPINION Letter"), represents the fair market value of the
Barnett Shale Property; provided, however, that if the cash consideration to be
paid to the Company pursuant to such Barnett Shale Property Sale that is


                                       24



accompanied by a Bank Opinion Letter is less than 125% of the sum of the
then-outstanding principal amounts of the Prior Debenture, this Debenture and
the Other Debentures, the Company shall not consummate such sale without the
consent of the Required Holders; and provided, further, that in the event that
such consent is sought by the Company pursuant to this provision, but not
granted by the Required Holders, then the First Sale Deadline and Second Sale
Deadline shall each be extended to March 31, 2007 and June 30, 2007,
respectively. If the Company has not so consummated a Barnett Shale Property
Sale on or prior to the First Sale Deadline or the Second Sale Deadline, or the
extended deadlines, if applicable, as the case may be, then the Company shall
immediately notify the Holder in writing thereof (a "BARNETT SHALE PROPERTY SALE
FAILURE NOTICE"), and the Holder shall have the right, in its sole discretion
and in each such case, to require that the Company redeem (each, a "BARNETT
SHALE PROPERTY SALE REDEMPTION") up to one-third (1/3) of the Principal amount
of this Debenture plus accrued and unpaid Interest with respect to such
Principal and accrued and unpaid Late Charges with respect to such Principal and
Interest (the "BARNETT SHALE PROPERTY SALE REDEMPTION AMOUNT"). The Holder may
exercise its redemption rights pursuant to this Section 15(e)(ii)(A) by
delivering written notice thereof (a "BARNETT SHALE PROPERTY SALE REDEMPTION
NOTICE") to the Company no later than twenty (20) Business Days after the Holder
has received a Barnett Shale Property Sale Failure Notice from the Company. The
Barnett Shale Property Sale Redemption Notice shall indicate the amount of the
applicable Barnett Shale Property Sale Redemption Amount that the Holder is
electing to have redeemed on the Barnett Shale Property Sale Redemption Exercise
Date and the date of such redemption (the "BARNETT SHALE PROPERTY SALE
REDEMPTION EXERCISE DATE"); provided, however, that such Barnett Shale Property
Sale Redemption Exercise Date shall not be less than two (2) Business Days after
the date of delivery to the Company of such Barnett Shale Property Sale
Redemption Notice. The portion of this Debenture subject to redemption pursuant
to this Section 15(e)(ii)(A) shall be redeemed by the Company in cash on the
applicable Barnett Shale Property Sale Redemption Exercise Date at a price equal
to the Barnett Shale Property Sale Redemption Amount being redeemed (the
"BARNETT SHALE PROPERTY SALE REDEMPTION PRICE").

                     (B) Upon receipt by the Company or any of its affiliates of
proceeds in connection with the consummation of a Barnett Shale Property Sale,
the Company shall immediately deposit, in immediately available funds, all of
such proceeds from the Barnett Shale Property Sale into the escrow account (the
"ESCROW ACCOUNT") established under the Escrow Agreement; provided, however,
that the Company shall not be required to deposit into the Escrow Account any
such proceeds that are greater than an amount in cash equal to the product of
(x) 125% and (y) the sum of the outstanding aggregate principal amount of (1)
the Prior Debentures and (2) this Debenture and the Other Debentures (the amount
of such product referred to herein as the "DEPOSIT AMOUNT").

                     (C) If the proceeds from the Barnett Shale Property Sale
that the Company deposits in the Escrow Account are less than the Deposit Amount
(the amount of such difference, the "DEPOSIT FAILURE AMOUNT"), then the Company
shall immediately notify the Holder in writing thereof (an "ESCROW FAILURE
NOTICE"), and the Holder shall have the right, in its sole discretion and in
each such case, to require that the Company redeem (each, an "ESCROW FAILURE
REDEMPTION") an amount equal to the Deposit Failure Amount multiplied by a
fraction, the numerator of which is the Principal amount of this Debenture and
the denominator of which is the aggregate principal amount of all Debentures and
the Prior Debentures (the "ESCROW FAILURE REDEMPTION AMOUNT"), such Escrow
Failure Redemption Amount to be applied to the then outstanding principal of all
Debentures and Prior Debentures. The Holder may exercise its redemption rights


                                       25



pursuant to this Section 15(e)(ii)(C) by delivering written notice thereof (an
"ESCROW FAILURE REDEMPTION NOTICE") to the Company no later than thirty (30)
Business Days after the Holder has received an Escrow Failure Notice from the
Company. The Escrow Failure Redemption Notice shall indicate the Holder's
election to (x) have the Escrow Failure Redemption Amount redeemed in full on
the Escrow Failure Redemption Exercise Date and the date of such redemption (the
"ESCROW FAILURE REDEMPTION EXERCISE DATE"); provided, however, that such Escrow
Failure Redemption Exercise Date shall not be less than two (2) Business Days
after the date of delivery to the Company of such Escrow Failure Redemption
Notice, or (y) have the Escrow Failure Redemption Amount paid in equal
installments on each Interest Date remaining during the term of this Debenture
after the date of the Escrow Failure Redemption Notice. The portion of this
Debenture subject to redemption pursuant to this Section 15(e)(ii)(C) shall be,
at the Company's election, (i) redeemed by the Company in cash on the applicable
Escrow Failure Redemption Exercise Date at a price equal to the Escrow Failure
Redemption Amount (the "ESCROW FAILURE REDEMPTION PRICE") or (ii) paid by a
conversion of an amount equal to the Escrow Failure Redemption Price into
Conversion Shares at the then applicable Conversion Price (an "ESCROW FAILURE
CONVERSION").

                     (D) For a period of three (3) months from and after the
date on which the proceeds from the Barnett Shale Property Sale are deposited
into the Escrow Account, the Holder may, in its sole discretion, elect to be
redeemed, (I) in cash in an amount up to the product of (x) 125% and (y) the
then outstanding principal amount of this Debenture and the then outstanding
principal amount of the Prior Debentures then held by such Holder, together with
accrued and unpaid Interest with respect to such principal amount and accrued
and unpaid Late Charges with respect to such principal amount and Interest or
(II) in a number of shares of Common Stock in an amount up to (1) the product of
(x) 125% and (y) the then outstanding principal amount of this Debenture and the
then outstanding principal amount of the Prior Debentures then held by such
Holder, together with accrued and unpaid Interest with respect to such principal
amount and accrued and unpaid Late Charges with respect to such principal amount
and Interest divided by (2) the then applicable Conversion Price. In the event
that the Holder does not elect to be redeemed pursuant to the foregoing
sentence, the proceeds from the Barnett Shale Property Sale shall remain in the
Escrow Account in an amount sufficient to make all Principal, Interest and other
payments under this Debenture until such time as there are no outstanding Prior
Debentures or Debentures.


                     (E) At the discretion of the Company, funds in the Escrow
Account may be released to reflect reductions in the amounts due under this
Debenture, the Other Debenture and the Prior Debenture, in either of the
alternatives described in subsections (1) or (2) below, as follows:

                     (1) The funds deposited into the Escrow Account by the
Company are intended to be utilized as a sinking fund from which payments of
interest, principal, redemptions, liquidations and the like under the Debentures
and the Prior Debentures may be drawn. Accordingly, whenever a payment of cash
is due to be paid by the Company hereunder, the Company may provide the Escrow
Agent with written notice indicating (a) the payment required to be made under
the Debentures and/or the Prior Debentures, (b) the amount of funds to be paid
under the Debentures and the Prior Debentures and (c) the date such payment is
due, and the Company may use such funds as the source of such payments and may
direct the Escrow Agent to release such funds from the Escrow Account to the
holders of the Debentures and/or the holders of the Prior Debentures, as
applicable.

                                       26



                     (2) In the event that the respective principal amounts of
the Prior Debentures, this Debentures and the Other Debentures are reduced in
accordance with the terms of this Debenture, the other Transaction Documents and
the Original Transaction Documents, (i) the Deposit Amount shall be reduced
ratably, in proportion to the principal amounts so reduced relative to the
outstanding principal amounts of the Prior Debentures, this Debenture and the
other Debentures, promptly following the reduction of the respective principal
amounts thereof and (ii) the Company, the Holder, the holders of the Other
Debentures and the holders of the Prior Debentures shall direct the Escrow Agent
to release such ratable amounts from the Escrow Account to the Company.

                     (F) The Holder acknowledges that any interest earned on the
Deposit Amount held in the Escrow Account will accrue to the benefit of the
Company.

                     (G) If, at any time from and after the date of the
Company's deposit of the Deposit Amount into the Escrow Account (the "DEPOSIT
DATE"), (i) the Closing Sale Price of the Common Stock for thirty (30) Trading
Days during any forty (40) consecutive Trading Day period (a "CALCULATION
PERIOD") following the Deposit Date equals or exceeds $2.00 per share (subject
to appropriate adjustments for stock splits, stock dividends, stock combinations
and other similar transactions after the Subscription Date) and (ii) the Equity
Conditions have been satisfied (or waived in writing by the Holder), the
Company, the Holder, the holders of the Other Debentures and the holders of the
Prior Debentures shall direct the Escrow Agent to release from the Escrow
Account to the Company an amount in cash equal to ten percent (10%) of the
aggregate dollar trading volume (as reported on Bloomberg) of the Common Stock
on the Principal Market during such forty (40) consecutive Trading Day period;
provided, however, that each and every such release of cash from the Escrow
Account to the Company pursuant to this paragraph shall start another
Calculation Period.

                     (H) In the event of an Escrow Failure Conversion, the
Company shall issue to the Holder an additional warrant for the purchase of an
amount of shares of Common Stock equal to twenty-five percent (25%) of the
quotient of the Escrow Failure Redemption Amount divided by the then applicable
Conversion Price (the "ESCROW FAILURE WARRANT Shares"). Such additional warrant
shall (i) be in the form of Exhibit A hereto, (ii) have a term of five years
from the issuance date thereof, (iii) have an exercise price equal to the then
applicable Conversion Price and (iv) be entitled to registration rights set
forth in the Registration Rights Agreement, with the Escrow Failure Warrant
Shares being deemed to be Registrable Securities (as defined therein).

               (iii) To the extent the terms of this Debenture permit or require
the Company to redeem all or a portion of the Prior Debentures, any principal
amounts so redeemed shall be treated by the Holder owning such Prior Debenture
as a reduction in the outstanding principal amount of such Prior Debenture.

                                       27



            (f) Use of Proceeds. The Company shall use the proceeds of sale of
the Securities: (i) for the fees and expenses associated with the sale of the
Debentures and Warrants; (ii) for drilling, development and related operations
costs associated with the Company's projects in the Fayetteville Shale Barnett
Shale, and to a lesser extent, in Colorado (Whitewater) (including those amounts
necessary to bring the Company's capital account into balance with its other
Woodruff County partners and repay its Woodruff County partners for any
outstanding advances on behalf of the project); (iii) to fund debt service on
the Debentures; and (iv) for general corporate purposes.

            (g) Additional Collateral. With respect to any Property acquired
after the Closing Date by the Company or any of its Subsidiaries (other than any
Property described in paragraph (b) or paragraph (c) of this Section) as to
which the Holder does not have a perfected Lien, promptly (i) execute and
deliver to the Holder or its agent such amendments to the Security Agreement or
such other documents as such Holder deems necessary or advisable to grant to the
Holder a security interest in such Property and (ii) take all actions necessary
or advisable to grant to the Holder, for the benefit of the Secured Parties, a
perfected first priority security interest in such Property, including without
limitation, the filing of Mortgages and UCC financing statements in such
jurisdictions as may be required by the Security Agreement or by law or as may
be requested by such Holder; provided that no such Mortgages shall be required
on or before the date that is 20 days following the Closing Date.

            (h) Stockholder Approval. If, after the Subscription Date, the
Company applies to have its Common Stock or other securities traded on any other
principal stock exchange or market, it shall include in such application the
Conversion Shares, Interest Shares and Warrant Shares and shall take such other
action as is necessary to cause such shares to be so listed, including, without
limitation, using its best efforts to solicit its stockholders' approval of the
transactions contemplated by the Transaction Documents and to cause the board of
directors of the Company to recommend to the stockholders that they approve the
same.

         (16) PARTICIPATION. The Holder, as the holder of this Debenture, shall
be entitled to receive such dividends paid and distributions made to the holders
of Common Stock to the same extent as if the Holder had converted this Debenture
into Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date for such
dividends and distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.

         (17) VOTE TO ISSUE, OR CHANGE THE TERMS OF, DEBENTURES. The affirmative
vote at a meeting duly called for such purpose or the written consent without a
meeting of the Required Holders shall be required for any change or amendment to
this Debenture or the Other Debentures.

         (18) TRANSFER. This Debenture and any shares of Common Stock issued
upon conversion of this Debenture may be offered, sold, assigned or transferred
by the Holder without the consent of the Company, subject only to the provisions
of Section 2(f) of the Securities Purchase Agreement.

         (19) REISSUANCE OF THIS DEBENTURE.

                                       28



            (a) Transfer. If this Debenture is to be transferred, the Holder
shall surrender this Debenture to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Debenture (in
accordance with Section 19(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Debenture
(in accordance with Section 19(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Debenture, acknowledge and agree that, by reason of the provisions of
Section 3(c)(iii) following conversion or redemption of any portion of this
Debenture, the outstanding Principal represented by this Debenture may be less
than the Principal stated on the face of this Debenture.

            (b) Lost, Stolen or Mutilated Debenture. Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Debenture, and, in the case of mutilation,
upon surrender and cancellation of this Debenture, the Company shall execute and
deliver to the Holder a new Debenture (in accordance with Section 19(d))
representing the outstanding Principal.

            (c) Debenture Exchangeable for Different Denominations. This
Debenture is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Debenture or Debentures (in
accordance with Section 19(d) and in principal amounts of at least $100,000)
representing in the aggregate the outstanding Principal of this Debenture, and
each such new Debenture will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such surrender.

            (d) Issuance of New Debentures. Whenever the Company is required to
issue a new Debenture pursuant to the terms of this Debenture, such new
Debenture (i) shall be of like tenor with this Debenture, (ii) shall represent,
as indicated on the face of such new Debenture, the Principal remaining
outstanding (or in the case of a new Debenture being issued pursuant to Section
19(a) or Section 19(c), the Principal designated by the Holder which, when added
to the principal represented by the other new Debentures issued in connection
with such issuance, does not exceed the Principal remaining outstanding under
this Debenture immediately prior to such issuance of new Debentures), (iii)
shall have an issuance date, as indicated on the face of such new Debenture,
which is the same as the Issuance Date of this Debenture, (iv) shall have the
same rights and conditions as this Debenture, and (v) shall represent accrued
Interest and Late Charges on the Principal and Interest of this Debenture, from
the Issuance Date.

         (20) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Debenture shall be cumulative
and in addition to all other remedies available under this Debenture and any of
the other Transaction Documents at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing herein shall
limit the Holder's right to pursue actual and consequential damages for any
failure by the Company to comply with the terms of this Debenture. Amounts set
forth or provided for herein with respect to payments, conversion and the like


                                       29



(and the computation thereof) shall be the amounts to be received by the Holder
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.

         (21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this
Debenture is placed in the hands of an attorney for collection or enforcement or
is collected or enforced through any legal proceeding or the Holder otherwise
takes action to collect amounts due under this Debenture or to enforce the
provisions of this Debenture or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors'
rights and involving a claim under this Debenture, then the Company shall pay
the costs incurred by the Holder for such collection, enforcement or action or
in connection with such bankruptcy, reorganization, receivership or other
proceeding, including, but not limited to, attorneys' fees and disbursements.

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

         (23) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

         (24) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price or the arithmetic calculation of the Conversion Rate or the
Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one (1) Business Day of receipt, or
deemed receipt, of the Conversion Notice or Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder. If the Holder
and the Company are unable to agree upon such determination or calculation
within one (1) Business Day of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within one
Business Day submit via facsimile (a) the disputed determination of the Closing
Bid Price, the Closing Sale Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or
the Redemption Price to the Company's independent, outside accountant. The
Company, at the Company's expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five (5)
Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.

         (25) NOTICES; PAYMENTS.

                                       30



            (a) Notices. Whenever notice is required to be given under this
Debenture, unless otherwise provided herein, such notice shall be given in
accordance with Section 10(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Debenture, including in reasonable detail a description of such
action and the reason therefor. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty (20)
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

            (b) Payments. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Debenture, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder's wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Debenture is due on any day which is
not a Business Day, the same shall instead be due on the next succeeding day
which is a Business Day and, in the case of any Interest Date which is not the
date on which this Debenture is paid in full, the extension of the due date
thereof shall not be taken into account for purposes of determining the amount
of Interest due on such date. Any amount of Principal or other amounts due under
the Transaction Documents, other than Interest, which is not paid when due shall
result in a late charge being incurred and payable by the Company in an amount
equal to interest on such amount at the rate of eighteen percent (18.00%) per
annum from the date such amount was due until the same is paid in full ("LATE
CHARGE").

         (26) CANCELLATION. After all Principal, accrued Interest and other
amounts at any time owed on this Debenture have been paid in full in cash, this
Debenture shall automatically be deemed canceled, shall be surrendered to the
Company for cancellation and shall not be reissued.

         (27) WAIVER OF NOTICE. To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Debenture and the Securities Purchase Agreement.

         (28) GOVERNING LAW. This Debenture shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Debenture and all disputes arising


                                       31



hereunder shall be governed by, the laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York.

         (29) CERTAIN DEFINITIONS. For purposes of this Debenture, the following
terms shall have the following meanings:

            (a) "ADDITIONAL WARRANTS" means warrants, in the form attached as
Exhibit A, with an exercise price of $2.00 per share (as adjusted in the manner
provided in the form of warrant for events occurring after the Subscription
Date), to purchase that number of shares of Common Stock equal to the amount
determined by dividing the applicable Conversion Amount by the Conversion Price
then in effect, and multiplying the result by the percentage set forth in column
A below corresponding to the arithmetic average of the Weighted Average Price of
the Common Stock on each of the five (5) consecutive Trading Days immediately
preceding the date on which a Mandatory Conversion Notice is given set forth in
column B below, as expressed as a percentage of the Conversion Price:

         Column A                                          Column B
            70%                                          125% - 175%
            60%                                          175% - 225%
            50%                                          225% - 300%
            25%                                             300%+

            (b) "ADJUSTED COMPANY CONVERSION PRICE" has the meaning set forth in
the definition of Company Conversion Price.

            (c) "ADJUSTED INITIAL COMPANY CONVERSION PRICE" has the meaning set
forth in the definition of Initial Company Conversion Price.

            (d) "APPROVED STOCK PLAN" means any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company.

            (e) "ASSET SALE" means (i) the sale, lease, conveyance or other
disposition of any assets or rights other than in the ordinary course of
business consistent with past practice, and (ii) the sale of Equity Interests in
any of the Company's Subsidiaries; provided that distributions by the Company or
any of its Subsidiaries of an interest in an oil and gas project, to
participants, co-owners, partners, operators, interest holders or others, that
are required pursuant to the documentation governing such oil and gas project
shall not constitute an "Asset Sale".

                                       32



            (f) "BARNETT SHALE PROPERTY" means the Company's working interests
in leasehold acreage in Wise County, Texas.

            (g) "BLOOMBERG" means Bloomberg Financial Markets.

            (h) "BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

            (i) "CAPITAL LEASE OBLIGATION" means, at the time any determination
is to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet prepared in
accordance with GAAP.

            (j) "CAPITAL STOCK" means: (1) in the case of a corporation,
corporate stock; (2) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock; (3) in the case of a partnership or limited
liability company, partnership interests (whether general or limited) or
membership interests; and (4) any other interest or participation that confers
on a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person, but excluding from all of the
foregoing any debt securities convertible into Capital Stock, whether or not
such debt securities include any right of participation with Capital Stock.

            (k) "CHANGE OF CONTROL" means any Fundamental Transaction other than
(i) any reorganization, recapitalization or reclassification of the shares of
Common Stock in which holders of the Company's voting power immediately prior to
such reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (ii) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.

            (l) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of


                                       33



any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 24. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

            (m) "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued Debentures pursuant to the terms of the Securities Purchase Agreement.

            (n) "COMPANY CONVERSION MEASURING PERIOD" has the meaning set forth
in the definition of Company Conversion Price.

            (o) "COMPANY CONVERSION PRICE" means, as of any date of
determination, that price which shall be the lower of (i) the applicable
Conversion Price and (ii) the price computed as 82.5% of the arithmetic average
of the Weighted Average Price of the Common Stock during each of the nineteen
(19) consecutive Trading Days commencing on the Trading Day immediately after
the applicable Installment Date (such period, the "COMPANY CONVERSION MEASURING
PERIOD"); provided, however, that such arithmetic average of the Weighted
Average Price of the Common Stock shall not be greater than the arithmetic
average of the Weighted Average Price of the Common Stock during the first five
(5) or last five (5) Trading Days of such Company Conversion Measuring Period.
Notwithstanding the foregoing, in the event that as a result of the application
of the Exchange Cap, the Company is unable to issue shares of Common Stock on an
Installment Settlement Date using the Company Conversion Price as calculated
pursuant to the foregoing sentence (the "UNADJUSTED COMPANY CONVERSION PRICE"),
then the Company Conversion Price shall be the price equal to the arithmetic
average of the Weighted Average Price of the Common Stock during each of the
five (5) consecutive Trading Days ending on the Trading Day immediately prior to
the applicable Installment Settlement Date (such price, the "ADJUSTED COMPANY
CONVERSION PRICE").

            (p) "CONVERSION SHARE RATIO" means, as to any applicable date of
determination, the quotient of (i) the number of Pre-Installment Conversion
Shares delivered in connection with an Installment Date divided by (ii) the
number of Post-Installment Conversion Shares relating to such Installment
Settlement Date.

            (q) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options, but including for the avoidance of doubt, warrants) directly or
indirectly convertible into or exercisable or exchangeable for Common Stock.

            (r) "ELIGIBLE MARKET" means the Principal Market, The New York Stock
Exchange, Inc., the American Stock Exchange, The Nasdaq National Market or The
Nasdaq Capital Market.

                                       34



            (s) "EQUITY CONDITIONS" means that each of the following conditions
is satisfied as of the date of determination either (x) the Registration
Statement filed pursuant to the Registration Rights Agreement shall be effective
and available for the resale of all remaining Registrable Securities in
accordance with the terms of the Registration Rights Agreement and there shall
not be any Grace Period (as defined in the Registration Rights Agreement) then
in effect or (y) all shares of Common Stock issuable upon conversion of the
Debentures and exercise of the Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws; (ii) the Common Stock is designated for quotation on
the Principal Market and shall not have been suspended from trading on such
exchange or market (other than suspensions of not more than two (2) days and
occurring prior to the applicable date of determination due to business
announcements by the Company) nor shall delisting or suspension by such exchange
or market been threatened or pending either (A) in writing by such exchange or
market or (B) by falling below the then effective minimum listing maintenance
requirements of such exchange or market; (iii) during the one (1) year period
ending on and including the date immediately preceding the applicable date of
determination, the Company shall have delivered any Conversion Shares upon
conversion of the Debentures and any Warrant Shares upon exercise of the
Warrants to the holders on a timely basis as set forth in Section 2(c)(ii)
hereof (and analogous provisions under the Other Debentures) and Section 1(a) of
the Warrants; (iv) any applicable shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full without
violating Section 3(d) hereof and the rules or regulations of the Principal
Market; (v) the Company shall not have failed to timely make any payments within
five (5) Business Days of when such payment is due pursuant to any Transaction
Document; (vi) there shall not then exist (A) the public announcement of a
pending, proposed or intended Fundamental Transaction which has not been
abandoned, terminated or consummated, (B) an Event of Default or (C) an event
that with the passage of time or giving of notice would constitute an Event of
Default; (vii) the Company shall have no knowledge of any fact that would cause
(x) the Registration Statements required pursuant to the Registration Rights
Agreement not to be effective and available for the resale of all remaining
Registrable Securities in accordance with the terms of the Registration Rights
Agreement or (y) any shares of Common Stock issuable upon conversion of the
Debentures and shares of Common Stock issuable upon exercise of the Warrants not
to be eligible for sale without restriction pursuant to Rule 144(k) and any
applicable state securities laws; and (viii) the Company otherwise shall have
been in material compliance with and shall not have materially breached any
provision, covenant, representation or warranty of any Transaction Document.

            (t) "EQUITY CONDITIONS MEASURING PERIOD" has the meaning set forth
in the definition of Equity Conditions.

            (u) "EQUITY CONDITIONS FAILURE" means that during any period
commencing with the delivery of the Company Installment Notice through the
applicable Installment Date or Installment Settlement Date, as applicable, the
Equity Conditions have not been satisfied (or waived in writing by the Holder).

            (v) "EQUITY INTERESTS" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).

                                       35



            (w) "ESCROW AGREEMENT" means the Escrow Agreement, substantially in
the form attached hereto as Exhibit B, among the Company, the Holders and the
escrow agent to be named therein (the "ESCROW AGENT").

            (x) "EXCHANGE CAP LIMITATION SHARES" means (i) with respect to any
conversion required pursuant to a Conversion Notice, a number of shares of
Common Stock equal to the quotient of the Conversion Amount set forth in such
Conversion Notice divided by the Conversion Price and (ii) with respect to any
Company Conversion, a number of shares of Common Stock equal to the quotient of
the Conversion Amount subject to conversion divided by the Unadjusted Company
Conversion Price.

            (y) "EXCLUDED SECURITIES" means any Common Stock issued or issuable:
(i) in connection with any Approved Stock Plan; (ii) upon conversion or
redemption of the Debentures or the Prior Debentures or the exercise of the
Warrants or the warrants issued in connection with the Prior Debentures; (iii)
pursuant to a bona fide firm commitment underwritten public offering with a
nationally recognized underwriter which generates gross proceeds to the Company
in excess of $50,000,000 (other than an "at-the-market offering" as defined in
Rule 415(a)(4) under the 1933 Act and "equity lines"); (iv) in connection with
the payment of any Interest Shares on the Debentures or the Prior Debentures;
(v) upon conversion of any Options or Convertible Securities which are
outstanding on the day immediately preceding the Subscription Date as disclosed
in Schedule 3(r) to the Securities Purchase Agreement, provided that the terms
of each such Options or Convertible Securities are not amended, modified or
changed on or after the Subscription Date; and (vi) up to 1.4 million shares of
Common Stock (subject to appropriate adjustments for stock splits, stock
dividends, stock combinations and other similar transactions after the
Subscription Date) to be issued for services as disclosed in Schedule 3(r) to
the Securities Purchase Agreement.

            (z) "FISCAL QUARTER" means each of the fiscal quarters adopted by
the Company for financial reporting purposes that correspond to the Company's
fiscal year that ends on August 31, or such other fiscal quarter adopted by the
Company for financial reporting purposes in accordance with GAAP.

            (aa) "FULL CONVERSION AMOUNT" means, as of any date of measurement,
the number of shares of Common Stock that the Holder would be entitled to
receive upon a conversion of the full Conversion Amount of this Debenture
(without regard to any limitations on conversion set forth in Section 3(d) or
otherwise).

            (bb) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of the outstanding
shares of Common Stock (not including any shares of Common Stock held by the
Person or Persons making or party to, or associated or affiliated with the


                                       36


Persons making or party to, such purchase, tender or exchange offer), or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.

            (cc) "GAAP" means United States generally accepted accounting
principles, consistently applied.

            (dd) "HEDGING OBLIGATIONS" means, with respect to any specified
Person, the obligations of such Person under:

               (i) interest rate swap agreements (whether from fixed to floating
or from floating to fixed), interest rate cap agreements and interest rate
collar agreements;

               (ii) other agreements or arrangements
designed to manage interest rates or interest rate risk;
and

               (iii) other agreements or arrangements designed to protect such
Person against fluctuations in currency exchange rates or commodity prices.

            (ee) "HOLDER OPTIONAL CONVERSION MEASURING PERIOD" has the meaning
set forth in the definition of Holder Optional Redemption Price.

            (ff) "HOLDER OPTIONAL REDEMPTION PRICE" means the lower of (i) that
price which shall be computed as 82.5% of the arithmetic average of the Weighted
Average Price of the Common Stock on each of the fifteen (15) consecutive
Trading Days immediately preceding the date on which the Holder delivers a
Holder Optional Redemption Notice (each such period, a "HOLDER OPTIONAL
CONVERSION MEASURING PERIOD") and (ii) the applicable Conversion Price. All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction that proportionately decreases or
increases the Common Stock the applicable such Holder Optional Conversion
Measuring Period.

            (gg) "INDEBTEDNESS" means, any indebtedness (excluding accrued
expenses and trade payables), whether or not contingent:

               (i) in respect of borrowed money;

               (ii) evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof);

               (iii) in respect of banker's acceptances;

               (iv) representing Capital Lease Obligations;

                                       37



               (v) representing the balance deferred and unpaid of the purchase
price of any property or services due more than six months after such property
is acquired or such services are completed; or

               (vi) representing any Hedging Obligations,

            if and to the extent any of the preceding items (other than letters
of credit and Hedging Obligations) would appear as a liability upon a balance
sheet of the Company prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the Company or its Subsidiaries (whether or not such Indebtedness is
assumed by the Company or such Subsidiary) and, to the extent not otherwise
included, the guarantee by the Company or any of its Subsidiaries of any
Indebtedness of any other Person.

            (hh) "INITIAL COMPANY CONVERSION PRICE" means, as of any date of
determination, that price which shall be the lower of (i) the applicable
Conversion Price and (ii) the price computed as 82.5% of the arithmetic average
of the Weighted Average Price of the Common Stock during each of the fifteen
(15) consecutive Trading Days ending on the Trading Day immediately prior to the
Installment Date (such period, the "INITIAL COMPANY MEASURING PERIOD");
provided, however, that such arithmetic average of the Weighted Average Price of
the Common Stock shall not be greater than the arithmetic average of the
Weighted Average Price of the Common Stock during the first three (3) or last
three (3) Trading Days of such Initial Company Conversion Measuring Period.
Notwithstanding the foregoing, in the event that as a result of the application
of the Exchange Cap, the Company is unable to issue shares of Common Stock on an
Installment Date using the Initial Company Conversion Price as calculated
pursuant to the foregoing sentence (the "UNADJUSTED INITIAL COMPANY CONVERSION
PRICE") to determine the number of shares of Common Stock to be issued to the
Holder as payment of any Company Conversion Amount on any Installment Date, then
the Initial Company Conversion Price shall be the price equal to the arithmetic
average of the Weighted Average Price of the Common Stock during each of the
five (5) consecutive Trading Days ending on the Trading Day immediately prior to
the applicable Installment Date (such price, the "ADJUSTED INITIAL COMPANY
CONVERSION PRICE").

            (ii) "INITIAL COMPANY MEASURING PERIOD" has the meaning set forth in
the definition of Initial Company Conversion Price.

            (jj) "INITIAL MATURITY DATE" means the first day of the month
immediately following the earlier of (i) the date on which the Registration
Statement filed pursuant to the Registration Rights Agreement shall be declared
effective by the SEC and (ii) the four-month anniversary of the Closing Date.

            (kk) "INSTALLMENT AMOUNT" means with respect to any Installment
Date, (i) the aggregate outstanding Principal of this Debenture divided by (y)
the number of whole months from such Installment Date through the Maturity Date,
plus (ii) all accrued and unpaid Interest on the aggregate Principal amount of
this Debenture on such Installment Date, plus (iii) all accrued and unpaid Late


                                       38



Charges with respect to the aggregate Principal amount of this Debenture or
Interest and any accrued and unpaid interest thereon. For the avoidance of
doubt, any accrued and unpaid interest which may be paid pursuant to this
definition shall be deducted from the total interest to be paid on any
subsequent Interest Payment Date. In the event the Holder shall sell or
otherwise transfer any portion of this Debenture, the transferee shall be
allocated a pro rata portion of the each unpaid Installment Amount hereunder.

            (ll) "INSTALLMENT AMOUNT DEEMED PAID" means the result of the
following formula: the product of (i) the arithmetic average of the Weighted
Average Price for the Trading Days in the period beginning on the day after the
Installment Date through the day before the Event of Default or Equity
Conditions Failure, as applicable (such number of days, the "SHORTENED
LIQUIDATION PERIOD") not to exceed the arithmetic average of the Weighted
Average Price for the first and last 3 days of such Shortened Liquidation Period
and (ii) the number of Pre-Installment Conversion Shares and (iii) the Shortened
Liquidation Period divided by 19. If the Shortened Liquidation Period is 3 or
fewer days, Installment Amount Deemed Paid will equal the product of (i) the
arithmetic average of the Weighted Average Price over the number of Trading Days
in such Shortened Liquidation Period and (ii) the number of Pre-Installment
Conversion Shares and (iii) the number of days in such Shortened Liquidation
Period divided by 19.

            (mm) "INSTALLMENT BALANCE CONVERSION SHARES" means, for any
Installment Date, a number of shares of Common Stock equal to (i) the
Post-Installment Conversion Shares for such date minus (ii) the amount of any
Pre-Installment Conversion Shares delivered on the Trading Day immediately prior
to such date; provided that in the event that the amount of Pre-Installment
Conversion Shares exceeds the Post-Installment Conversion Shares for such date
the Installment Balance Conversion Shares shall equal zero (0).

            (nn) "INSTALLMENT CONVERSION SHARES EXCESS" has the meaning set
forth in the definition of Installment Balance Conversion Shares.

            (oo) "INSTALLMENT DATE" means (i) the first day of each month
commencing on the Initial Maturity Date and continuing for each subsequent month
for the term of this Debenture until the principal amount due under this
Debenture is paid in full in equal installments; and (ii) any other Installment
Date scheduled by the Holder in connection with a Deferral Amount pursuant to
Section 8(d) hereof.

            (pp) "INTEREST CONVERSION PRICE" means, with respect to any Interest
Date, that price which shall be computed as 82.5% of the arithmetic average of
the Weighted Average Price of the Common Stock on each of the five (5)
consecutive Trading Days immediately preceding the applicable Interest Date
(each, an "Interest Measuring Period"). All such determinations to be
appropriately adjusted for any stock split, stock dividend, stock combination or
other similar transaction during such period.

            (qq) "MEASURING PERIOD" means any of the Interest Measuring Period
or Company Conversion Measuring Period, as applicable.

            (rr) "MORTGAGE" means a Mortgage in form and substance reasonably
satisfactory to the Holder, as it may be amended, supplemented or otherwise
modified from time to time.

                                       39



            (ss) "OPTIONS" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.

            (tt) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

(uu) "PERMITTED INDEBTEDNESS" means (a) purchase money debt, Capital Lease
Obligations or other Indebtedness incurred in connection with the acquisition of
an interest in property, equipment, entities or other assets, provided that such
purchase money debt, Capital Lease Obligations or other Indebtedness either (i)
is recourse only to the interests in property, equipment, entities or other
assets so acquired or (ii) is incurred by the Company and not by any Subsidiary
of the Company, and (b) Indebtedness described in Schedule 3(s) of the
Securities Purchase Agreement.

            (vv) "PERMITTED LIENS" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens securing the Company's
obligations under the Debentures, (v) Liens securing purchase money debt,
Capital Lease Obligations or other Indebtedness incurred pursuant to clause (a)
of the definition of Permitted Indebtedness, provided that such Liens do not
extend and otherwise are not recourse to any assets of the Company or its
Subsidiaries other than the interests in property, equipment, entities or other
assets acquired with such purchase money debt, Capital Lease Obligations or
other Indebtedness; and (vi) Liens securing Indebtedness permitted by Section
15(b)(iv) to the extent that they are pari passu or junior to the security
interests with respect to the Debenture, the Other Debentures or the Prior
Debentures.

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

            (xx) "POST-INSTALLMENT CONVERSION SHARES" means, for any Installment
Date, that number of shares of Common Stock equal to the applicable Company
Conversion Amount for such Installment Date divided by the Company Conversion
Price (without taking into account the delivery of any Pre-Installment
Conversion Shares), rounded up to the nearest whole share of Common Stock.

            (yy) "PRINCIPAL MARKET" means the NASD OTC Bulletin Board.

                                       40



            (zz) "PRIOR DEBENTURES" means the senior secured debentures issued
and sold by the Company on January 5, 2006 pursuant to the Prior Transaction
Documents, as the same may be amended from time to time in accordance with the
terms hereof and thereof.

            (aaa) "PRIOR TRANSACTION DOCUMENTS" means the Securities Purchase
Agreement dated as of January 5, 2006 among the Company and the buyers named
therein and the other transaction documents entered into in connection
therewith, as the same may be amended from time to time in accordance with the
terms hereof and thereof.

            (bbb) "PROPERTY" means any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, capital stock.

            (ccc) "REDEMPTION PREMIUM" means (i) in the case of the Events of
Default described in Section 4(a)(i) - (vi) and (ix) - (xiii), 120%, (ii) in the
case of the Events of Default described in Section 4(a)(vii) - (viii), 100%, or
(iii) in the case of the Event of Default described in Section 4(a)(xiv), 200%.

            (ddd) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement dated as of the Subscription Date by and among the
Company and the initial holders of the Debentures relating to, among other
things, the registration of the resale of the Common Stock issuable upon
conversion of the Debentures and exercise of the Warrants.

            (eee) "REQUIRED HOLDERS" means the holders of Debentures
representing at least a majority of the aggregate principal amount of the
Debentures then outstanding.

            (fff) "SEC" means the United States Securities and Exchange
Commission.

            (ggg) "SECURITIES PURCHASE AGREEMENT" means that certain securities
purchase agreement dated as of the Subscription Date by and among the Company
and the initial holders of the Debentures pursuant to which the Company issued
the Debentures.

            (hhh) "SECURITY AGREEMENT" means the Pledge and Security Agreement
dated as of June 21, 2006 among the Company, its Subsidiaries, the holder of
this Debenture and the holders of the Other Debentures.

            (iii) "SECURITY DOCUMENTS" means the Security Agreement, the
Mortgages, if any, and all other instruments, documents and agreements delivered
by the Company or any of its Subsidiaries in order to grant to any holder of a
Debenture or Other Debenture, a Lien on any real, personal or mixed property of
the Company or one of its Subsidiaries as security for the obligations under the
Debentures and Other Debentures.

            (jjj) "SUBSCRIPTION DATE" means June 21, 2006.

                                       41



            (kkk) "SUCCESSOR ENTITY" means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction or the Person
with which such Fundamental Transaction shall have been made, provided that if
such Person is not a publicly traded entity whose common stock or equivalent
equity security is quoted or listed for trading on an Eligible Market, Successor
Entity shall mean such Person's Parent Entity.

            (lll) "TRADING DAY" means any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock is then traded; provided that
"TRADING DAY" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).

            (mmm) "UNADJUSTED COMPANY CONVERSION PRICE" has the meaning set
forth in the definition of Company Conversion Price.

            (nnn) "UNADJUSTED INITIAL COMPANY CONVERSION PRICE" has the meaning
set forth in the definition of Initial Company Conversion Price.

            (ooo) "WARRANTS" has the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all warrants issued in exchange
therefor or replacement thereof.

            (ppp) "WEIGHTED AVERAGE PRICE" means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its "Volume at Price" functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as such
market publicly announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 24. All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.

                                       42



         (30) DISCLOSURE. Upon receipt or delivery by the Company of any notice
in accordance with the terms of this Debenture, unless the Company has in good
faith determined that the matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries, the
Company shall within one (1) Business Day after any such receipt or delivery
publicly disclose such material, nonpublic information on a Current Report on
Form 8-K or otherwise. In the event that the Company believes that a notice
contains material, nonpublic information relating to the Company or its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, nonpublic information relating to the Company or its
Subsidiaries.

                            [Signature Page Follows]




                                       43



/

         IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed as of the Issuance Date set out above.


                                    MAVERICK OIL AND GAS, INC.


                                    By:_____________________________

                                    Name:

                                    Title:




                                       44





                                    EXHIBIT I

                           MAVERICK OIL AND GAS, INC.
                                CONVERSION NOTICE

Reference is made to the Senior Convertible Debenture (the "DEBENTURE") issued
to the undersigned by Maverick Oil and Gas, Inc. (the "COMPANY"). In accordance
with and pursuant to the Debenture, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Debenture) of the Debenture indicated below
into shares of Common Stock, par value $0.001 per share (the "COMMON Stock"), of
the Company, as of the date specified below.

         Date of Conversion:____________________________________________________

         Aggregate Conversion Amount to be converted:___________________________

Please confirm the following information:

         Conversion Price:______________________________________________________

         Number of shares of Common Stock to be issued:_________________________

Please issue the Common Stock into which the Debenture is being converted in the
following name and to the following address:

         Issue to:______________________________________________________________

                  ______________________________________________________________

                  ______________________________________________________________

         Facsimile Number:______________________________________________________

         Authorization:_________________________________________________________

            By:_________________________________________________________________

               Title:___________________________________________________________

Dated:__________________________________________________________________________

         Account Number:________________________________________________________
         (if electronic book entry transfer)

         Transaction Code Number:_______________________________________________
         (if electronic book entry transfer)

Installment Amounts to be reduced and amount of reduction:




                                       45




                                 ACKNOWLEDGMENT

         The Company hereby acknowledges this Conversion Notice and hereby
directs Holladay Stock Transfer, Inc. to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
June 21, 2006 from the Company and acknowledged and agreed to by Holladay Stock
Transfer, Inc.


                                    MAVERICK OIL AND GAS, INC.


                                    By:_____________________________

                                    Name:

                                    Title:




                                       46






                                   EXHIBIT A

                           FORM OF ADDITIONAL WARRANTS


                                       47





                                    EXHIBIT B

                            FORM OF ESCROW AGREEMEN

                                       48