EXHIBIT A

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

THE HOLDER AND ANY ASSIGNEE BY ACCEPTANCE OF THIS DEBENTURE, ACKNOWLEDGE AND
AGREE THAT, BY REASON OF THE PROVISIONS OF PARAGRAPH 4 HEREOF, FOLLOWING
CONVERSION OF A PORTION OF THIS DEBENTURE, THE UNPAID AND UNCONVERTED PRINCIPAL
AMOUNT OF THIS DEBENTURE MAY BE LESS THAN THE AMOUNT STATED ON THE FACE HEREOF.

Original Issue Date: ________, 2006

Original Conversion Price (subject to adjustment herein): $1.15634

$_______________

SERIES A 10% SENIOR CONVERTIBLE DEBENTURE

DUE NOVEMBER __, 2008

FOR VALUE RECEIVED, the Company promises to pay to ____________ or its
registered assigns (the “Holder”), or shall have paid pursuant to the terms
hereunder, the principal sum of $________ by November __, 2008 (the “Maturity
Date”) or such earlier date as this Series A 10% Senior Convertible Debenture
(the “Debenture”) is required or permitted to be repaid as provided hereunder,
and to pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture in accordance with the provisions
hereof.  This Debenture is one of a series of duly authorized and validly issued
Series A 10% Senior Convertible Debentures of Guardian Technologies
International, Inc., a Delaware corporation, having its principal place of
business at 516 Herndon Parkway, Suite A, Herndon, Virginia 20170 (the
“Company”), designated as its Series A 10% Senior Convertible Debenture due
November __, 2008 (this Debenture, collectively with the other debentures in
such series issued pursuant to the Purchase Agreement, the “Debentures”).

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This Debenture is subject to the following additional provisions:

Section 1.

Definitions.  For the purposes hereof, in addition to the terms defined
elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein
shall have the meanings set forth in the Purchase Agreement and (b) the
following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Bankruptcy Event” means any of the following events: (a) the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X) thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any Significant Subsidiary thereof; (b) there is commenced against
the Company or any Significant Subsidiary thereof any such case or proceeding
that is not dismissed within 60 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order
of relief or other order approving any such case or proceeding is entered; (d)
the Company or any Significant Subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such appointment; (e) the
Company or any Significant Subsidiary thereof makes a general assignment for the
benefit of creditors; (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the foregoing.

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

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

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of
any of (i) an acquisition after the date hereof by an individual or legal entity
or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)
of effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 50% of the
voting securities of the Company (other than by means of conversion or exercise
of the Debentures and the Securities issued together with the Debentures), or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and,

2

after giving effect to such transaction, the stockholders of the Company
immediately prior to such transaction own less than 50% of the aggregate voting
power of the Company or the successor entity of such transaction, or (iii) the
Company sells or transfers all or substantially all of its assets to another
Person and the stockholders of the Company immediately prior to such transaction
own less than 50% of the aggregate voting power of the acquiring entity
immediately after the transaction, or (iv) a replacement at one time or within a
three year period of more than one-half of the members of the Company’s board of
directors which is not approved by a majority of those individuals who are
members of the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), or (v) the
execution by the Company of an agreement to which the Company  is a party or by
which it is bound, providing for any of the events set forth in clauses (i)
through (iv) above, provided that any action by any Purchaser (or his assignee)
that results in any event set forth in clauses (i) through (v) above shall not
be deemed a Change of Control Transaction for the purposes hereof.

“Closing Price” means, on any particular date, (a) the last reported closing bid
price per share of Common Stock on such date on the Trading Market (as reported
by Bloomberg L.P. at 4:15 p.m. (New York City time)), or (b) if there is no such
price on such date, the closing bid price on the Trading Market on the date
nearest preceding such date (as reported by Bloomberg L.P. at 4:15 p.m. (New
York City time)), or (c) if the Common Stock is not then listed or quoted for
the Trading Market and if prices for the Common Stock are then reported in the
“pink sheets” published by Pink Sheets LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported, or (d) if the shares of Common Stock are
not publicly traded, the fair market value of  a share of Common Stock as
determined by an appraiser selected in good faith by the Purchasers holding at
least 50.1% in principal amount of the outstanding Debentures.

“Common Stock” means the common stock, par value $0.001 per share, of the
Company and stock of any other class of securities into which such securities
may hereafter be reclassified or changed into.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion or redemption of this Debenture in accordance with the terms
hereof.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

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“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Effectiveness Period” shall have the meaning set forth in the Registration
Rights Agreement.

“Equity Conditions” means, during the period in question, (i) the Company shall
have duly honored all conversions and redemptions scheduled to occur or
occurring by virtue of one or more Notices of Conversion of the Holder, if any,
(ii) the Company shall have paid all liquidated damages and other amounts owing
to the Holder in respect of this Debenture, (iii) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv) the
Common Stock is trading on a Trading Market and all of the shares issuable
pursuant to the Transaction Documents are listed or quoted for trading on such
Trading Market (and the Company believes, in good faith, that trading of the
Common Stock on a Trading Market will continue uninterrupted for the foreseeable
future), (v) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the
shares issuable pursuant to the Transaction Documents, (vi) there is no existing
Event of Default or no existing event which, with the passage of time or the
giving of notice, would constitute an Event of Default, (vii) the issuance of
the shares in question to the Holder would not violate the limitations set forth
in Section 4(c) herein, (viii) there has been no public announcement of a
pending or proposed Fundamental Transaction or Change of Control Transaction
that has not been consummated, (ix) the Holder is not in possession of any
information provided by the Company that constitutes, or may constitute,
material non-public information and (x) for a period of 20 consecutive Trading
Days prior to the applicable date in question, the daily trading volume of the
Common Stock on the principal Trading Market exceeds 100,000 shares (subject to
adjustment for forward and reverse stock splits and the like) per Trading Day.

“ Event of Default ” shall have the meaning set forth in Section 8.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“Interest Conversion Rate” means 85% of the lesser of (i) the average of the
VWAPs for the 5 consecutive Trading Days ending on the Trading Day that is
immediately prior to the applicable Interest Payment Date or (ii) the average of
the VWAPs for the 5 consecutive Trading Days ending on the Trading Day that is
immediately prior to the date the applicable Interest Conversion Shares are
issued and delivered if after the Interest Payment Date.

“Interest Conversion Shares” shall have the meaning set forth in Section 2(a).

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“Interest Notice Period” shall have the meaning set forth in Section 2(a).

 

“Interest Payment Date” shall have the meaning set forth in Section 2(a).

“Interest Share Amount” shall have the meaning set forth in Section 2(a).

“Late Fees” shall have the meaning set forth in Section 2(d).

“Mandatory Default Amount”  means the sum of (i) the greater of (A) 120% of the
outstanding principal amount of this Debenture, plus all accrued and unpaid
interest hereon, or (B) the outstanding principal amount of this Debenture, plus
all accrued and unpaid interest hereon, divided by the Conversion Price on the
date the Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower Conversion Price, multiplied by the VWAP on the date the
Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in
full, whichever has a higher VWAP, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of this Debenture.

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Optional Redemption” shall have the meaning set forth in Section 6(a).

“Optional Redemption Amount” means the sum of (i) 110% of the principal amount
of the Debenture then outstanding, (ii) accrued but unpaid interest and (iii)
all liquidated damages and other amounts due in respect of the Debenture.

“Optional Redemption Date” shall have the meaning set forth in Section 6(a).

“Optional Redemption Notice” shall have the meaning set forth in Section 6(a).

“Optional Redemption Notice Date” shall have the meaning set forth in Section
6(a).

“Original Issue Date” means the date of the first issuance of the Debentures,
regardless of any transfers of any Debenture and regardless of the number of
instruments which may be issued to evidence such Debentures and shall be either
(i) the First Closing Date as to the Debentures issued at the First Closing or
(ii) the Second Closing Date as to the Debentures issued at the Second Closing.

“Permitted Indebtedness” mean s (a) the Indebtedness existing on the Original
Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement,
(b) lease obligations and purchase money indebtedness of up to $500,000, in the
aggregate, incurred in connection with the acquisition of capital assets and
lease obligations with respect to newly acquired or leased assets, (c)
indebtedness to trade creditors (including under letters of credit and bankers
acceptances) incurred by the Company in the ordinary

5

course of business, (d) indebtedness that (i) is expressly subordinate to the
Debentures pursuant to a written subordination agreement with the Purchasers
that is acceptable to each Purchaser in its sole and absolute discretion and
(ii) matures at a date later than the Maturity Date, and (e) any extensions,
modifications, amendments or refinancings in connection with the foregoing,
provided that the terms of any such extensions, modifications, amendments or
refinancings are not less favorable to the Company.

“Permitted Lien” means the individual and collective reference to the following:
(a) Liens for taxes, assessments and other governmental charges or levies not
yet due or Liens for taxes, assessments and other governmental charges or levies
being contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Company) have been
established in accordance with GAAP; (b) Liens imposed by law which were
incurred in the ordinary course of the Company’s business, such as carriers’,
warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other
similar Liens arising in the ordinary course of the Company’s business, and
which (x) do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the
operation of the business of the Company and its consolidated Subsidiaries or
(y) are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing for the foreseeable future the
forfeiture or sale of the property or asset subject to such Lien; (c) Liens
incurred in connection with Permitted Indebtedness under clause (a) thereunder;
and (d) Liens incurred in connection with Permitted Indebtedness under clause
(b) thereunder, provided that such Liens are not secured by assets of the
Company or its Subsidiaries other than the assets so acquired or leased.

 “Person” means an individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of
November __, 2006, among the Company and the original Holders, as amended,
modified or supplemented from time to time in accordance with its terms.

“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of the Purchase Agreement, among the Company and the original
Holders, as amended, modified or supplemented from time to time in accordance
with its terms.

“Registration Statement” means a registration statement that registers the
resale of all Conversion Shares and Interest Conversion Shares of the Holder,
names such Holder as a “selling stockholder” therein, and meets the requirements
of the Registration Rights Agreement.

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

“Share Delivery Date” shall have the meaning set forth in Section 4(d).

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“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the principal Trading Market is open for
business.

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American
Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase
Agreement.

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time)); (b)  if the Common Stock is not then listed or quoted for
trading on a Trading Market and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by Holders of at least 50.1% of outstanding
Debentures and reasonably acceptable to the Company.

Section 2.

Interest.

a)

Payment of Interest in Cash or Kind. The Company shall pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of 10% per annum, payable (i) quarterly on January 1,
April 1, July 1 and October 1, commencing on the first such date after the
Original Issue Date, (ii) on each Conversion Date (as to that principal amount
then being converted, including if such conversion occurs prior to July 1, 2007)
and (iii) on the Maturity Date (each such date, an “Interest Payment Date”) (if
any Interest Payment Date is not a Business Day, the applicable payment shall be
due on the next succeeding Business Day), in cash or duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock at the Interest
Conversion Rate (the dollar amount of interest to be paid in shares, the
“Interest Share Amount”) or a combination thereof; provided, however, that
payment in shares of Common Stock may only occur if (i) all of the Equity
Conditions have been met (unless waived in writing by the Holder) during the 20
Trading Days immediately prior to the applicable Interest Payment Date  (the
“Interest Notice Period”) and through and including the date such shares of
Common Stock are issued to the Holder, (ii) the Company shall have given the
Holder notice in accordance with the notice requirements

7

set forth below and (iii) as to such Interest Payment Date, prior to such
Interest Notice Period (but not more than 5 Trading Days prior to the
commencement of such Interest Notice Period), the Company shall have delivered
to the Holder’s account with The Depository Trust Company a number of shares of
Common Stock to be applied against such Interest Share Amount equal to the
quotient of (x) the applicable Interest Share Amount divided by (y) the then
Conversion Price (the “Interest Conversion Shares”).

 

b)

Company’s Election to Pay Interest in Kind.  Subject to the terms and conditions
herein, the decision whether to pay interest hereunder in cash, shares of Common
Stock or a combination thereof shall be at the discretion of the Company.  Prior
to the commencement of any Interest Notice Period, the Company shall deliver to
the Holder a written notice of its election to pay interest hereunder on the
applicable Interest Payment Date either in cash, shares of Common Stock or a
combination thereof and the Interest Share Amount as to the applicable Interest
Payment Date, provided that the Company may indicate in such notice that the
election contained in such notice shall apply to future Interest Payment Dates
until revised by a subsequent notice.  During any Interest Notice Period, the
Company’s election (whether specific to an Interest Payment Date or continuous)
shall be irrevocable as to such Interest Payment Date.  Subject to the
aforementioned conditions, failure to timely deliver such written notice to the
Holder shall be deemed an election by the Company to pay the interest on such
Interest Payment Date in cash.  At any time the Company delivers a notice to the
Holder of its election to pay the interest in shares of Common Stock, the
Company shall timely file a prospectus supplement pursuant to Rule 424
disclosing such election.  The aggregate number of shares of Common Stock
otherwise issuable to the Holder on an Interest Payment Date shall be reduced by
the number of Interest Conversion Shares previously issued to the Holder in
connection with such Interest Payment Date.

c)

Interest Calculations. Interest shall be calculated on the basis of a 360-day
year, consisting of twelve 30 calendar day periods, and shall accrue daily
commencing on the Original Issue Date until payment in full of the principal
sum, together with all accrued and unpaid interest, liquidated damages and other
amounts which may become due hereunder, has been made.  Payment of interest in
shares of Common Stock (other than the Interest Conversion Shares issued prior
to an Interest Notice Period) shall otherwise occur pursuant to Section 4(d)(ii)
herein and, solely for purposes of the payment of interest in shares, the
Interest Payment Date shall be deemed the Conversion Date.  Interest shall cease
to accrue with respect to any principal amount converted, provided that the
Company actually delivers the Conversion Shares within the time period required
by Section 4(d)(ii) herein.  Interest hereunder will be paid to the Person in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the “Debenture Register”). Except
as otherwise provided herein, if at any time the Company pays interest partially
in cash and partially in shares of Common Stock to the holders of the
Debentures, then such payment of cash shall be distributed ratably among the
holders of the then-outstanding Debentures based on their (or their
predecessors’) initial purchases of Debentures pursuant to the Purchase
Agreement.

8

d)

Late Fee.  All overdue accrued and unpaid interest to be paid hereunder shall
entail a late fee at an interest rate equal to the lesser of 18% per annum or
the maximum rate permitted by applicable law (“Late Fees”) which shall accrue
daily from the date such interest is due hereunder through and including the
date of payment in full. Notwithstanding anything to the contrary contained
herein, if on any Interest Payment Date the Company has elected to pay accrued
interest in the form of Common Stock but the Company is not permitted to pay
accrued interest in Common Stock because it fails to satisfy the conditions for
payment in Common Stock set forth in Section 2(a) herein, then, at the option of
the Holder, the Company, in lieu of delivering either shares of Common Stock
pursuant to this Section 2 or paying the regularly scheduled interest payment in
cash, shall deliver, within three Trading Days of each applicable Interest
Payment Date, an amount in cash equal to the product of (x) the number of shares
of Common Stock otherwise deliverable to the Holder in connection with the
payment of interest due on such Interest Payment Date multiplied by (y) the
average of the VWAPs during the period commencing on the Interest Payment Date
and ending on the Trading Day prior to the date such payment is made.  If any
Interest Conversion Shares are issued to the Holder in connection with an
Interest Payment Date and are not applied against an Interest Share Amount, then
the Holder shall, at the Holder’s option, either (i) promptly return such excess
shares to the Company or (ii) direct the Company to reduce the Interest Share
Amount due  to such Holder on the next scheduled Interest Payment Date by an
amount equal to (a) the number of such excess shares multiplied by (B) the
applicable Interest Conversion Rate.

 

e)

Prepayment.  Except as otherwise set forth in this Debenture, the Company not
prepay any portion of the principal amount of this Debenture without the prior
written consent of the Holder.

Section 3.

 Registration of Transfers and Exchanges.

 

a)

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

 

b)

Investment Representations. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement and applicable federal and state securities laws and
regulations.  

c)

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

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Section 4.

  Conversion.

 

a)

Voluntary Conversion. At any time after the Original Issue Date until this
Debenture is no longer outstanding, this Debenture shall be convertible, in
whole or in part, into shares of Common Stock at the option of the Holder, at
any time and from time to time (subject to the conversion limitations set forth
in Section 4(c) hereof).  The Holder shall effect conversions by delivering to
the Company a notice of conversion in the form attached hereto as Annex A (a
“Notice of Conversion”), specifying therein the principal amount of this
Debenture to be converted and the date on which such conversion shall be
effected (such date, the “Conversion Date”).  If no Conversion Date is specified
in a Notice of Conversion, the Conversion Date shall be the date that such
Notice of Conversion is deemed delivered hereunder.  To effect conversions
hereunder, the Holder shall not be required to physically surrender this
Debenture to the Company unless the entire principal amount of this Debenture,
plus all accrued and unpaid interest thereon, has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of
this Debenture in an amount equal to the applicable conversion.  The Holder and
the Company shall maintain records showing the principal amount(s) converted and
the date of such conversion(s).  The Company may deliver an objection to any
Notice of Conversion within 1 Business Day of delivery of such Notice of
Conversion.  In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest error.

 

b)

Conversion Price.  The conversion price in effect on any Conversion Date shall
be equal to $1.15634 (subject to adjustment herein) (the “Conversion Price”).

c)

Conversion Limitations.  The Company shall not effect any conversion of this
Debenture, and a Holder shall not have the right to convert any portion of this
Debenture, to the extent that after giving effect to the conversion set forth on
the applicable Notice of Conversion, such Holder (together with such Holder’s
Affiliates, and any other person or entity acting as a group together with such
Holder or any of such Holder’s Affiliates) would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below).  For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
such Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Debenture with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which are issuable upon (A) conversion of the remaining, unconverted
principal amount of this Debenture beneficially owned by such Holder or any of
its Affiliates and (B) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company  subject to a limitation on
conversion or exercise analogous to the limitation contained herein (including,
without limitation, any other Debentures or the Warrants) beneficially owned by
such Holder or any of its Affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 4(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder.  To the extent that the limitation
contained in this Section 4(c) applies, the determination of whether this
Debenture is convertible (in relation to other securities owned by such Holder
together

10

with any Affiliates) and of which principal amount of this Debenture is
convertible shall be in the sole discretion of such Holder, and the submission
of a Notice of Conversion shall be deemed to be such Holder’s determination of
whether this Debenture may be converted (in relation to other securities owned
by such Holder together with any Affiliates) and which principal amount of this
Debenture is convertible, in each case subject to such aggregate percentage
limitations. To ensure compliance with this restriction, each Holder will be
deemed to represent to the Company each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the restrictions set forth in
this paragraph and the Company shall have no obligation to verify or confirm the
accuracy of such determination.   In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder .
  For purposes of this Section 4(c)(ii), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as stated in the most recent of the
following: (A) the Company’s most recent Form 10-Q or Form 10-K, as the case may
be; (B) a more recent public announcement by the Company; or (C) a more recent
notice by the Company or the Company’s transfer agent setting forth the number
of shares of Common Stock outstanding.  Upon the written or oral request of a
Holder, the Company shall within two Trading Days confirm orally and in writing
to such 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 such Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of this Debenture held by the
Holder.  The Beneficial Ownership Limitation provisions of this Section 4(c) may
be waived by such Holder, at the election of such Holder, upon not less than 61
days’ prior notice to the Company, to change the Beneficial Ownership Limitation
to 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon conversion of
this Debenture held by the Holder and the provisions of this Section 4(c) shall
continue to apply.  Upon such a change by a Holder of the Beneficial Ownership
Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial
Ownership Limitation may not be further waived by such Holder.  The provisions
of this paragraph shall be construed and implemented in a manner otherwise than
in strict conformity with the terms of this Section 4(c) to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or to make changes
or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Debenture .

 

d)

Mechanics of Conversion.

 

i.

Conversion Shares Issuable Upon Conversion of Principal Amount.  The number of
shares of Common Stock issuable upon a conversion

11

hereunder shall be determined by the quotient obtained by dividing (x) the
outstanding principal amount of this Debenture to be converted by (y) the
Conversion Price.

ii.

Delivery of Certificate Upon Conversion. Not later than three Trading Days after
each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or
cause to be delivered, to the Holder (A) a certificate or certificates
representing the Conversion Shares which, on or after the Effective Date, shall
be free of restrictive legends and trading restrictions (other than those which
may then be required by the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of this Debenture
(including, if the Company has given continuous notice pursuant to Section 2(b)
for payment of interest in shares of Common Stock at least 20 Trading Days prior
to the date on which the Conversion Notice is delivered to the Company, shares
of Common Stock representing the payment of accrued interest otherwise
determined pursuant to Section 2(a) but assuming that the Interest Payment
Period is the 20 Trading Days period immediately prior to the date on which the
Conversion Notice is delivered to the Company and excluding for such issuance
the condition that the Company deliver Interest Conversion Shares as to such
interest payment) and (B) a bank check in the amount of accrued and unpaid
interest (if the Company has elected or is required to pay accrued interest in
cash). On or after the Effective Date, the Company shall use its best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section 4 electronically through the Depository Trust Company or
another established clearing corporation performing similar functions.  

 

iii.

Failure to Deliver Certificates.  If in the case of any Notice of Conversion
such certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Company at any time on or
before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder any
original Debenture delivered to the Company and the Holder shall promptly return
the Common Stock certificates representing the principal amount of this
Debenture tendered for conversion to the Company.

 

iv.

Obligation Absolute; Partial Liquidated Damages.  The Company’s obligations to
issue and deliver the Conversion Shares upon conversion of this Debenture in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other Person, and irrespective of
any other circumstance which might otherwise limit such

12

obligation of the Company to the Holder in connection with the issuance of such
Conversion Shares; provided, however, that such delivery shall not operate as a
waiver by the Company of any such action the Company may have against the
Holder.  In the event the Holder of this Debenture shall elect to convert any or
all of the outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or anyone associated or affiliated
with the Holder has been engaged in any violation of law, agreement or for any
other reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this Debenture shall
have been sought and obtained, and the Company posts a surety bond for the
benefit of the Holder in the amount of 150% of the outstanding principal amount
of this Debenture, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the underlying
dispute and the proceeds of which shall be payable to such Holder to the extent
it obtains judgment.  In the absence of such injunction, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
 If the Company fails for any reason to deliver to the Holder such certificate
or certificates pursuant to Section 4(d)(ii) by the third Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, for each $1000 of principal amount being
converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth
Trading Day after such liquidated damages begin to accrue) for each Trading Day
after such third Trading Day until such certificates are delivered.    Nothing
herein shall limit a Holder’s right to pursue actual damages or declare an Event
of Default pursuant to Section 8 hereof for the Company’s failure to deliver
Conversion Shares within the period specified herein and such Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.  The exercise of any such rights shall not prohibit the
Holder from seeking to enforce damages pursuant to any other Section hereof or
under applicable law.

 

v.

Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the Holder, if the
Company fails for any reason to deliver to the Holder such certificate or
certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if
after such Share Delivery Date the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise), or the Holder’s brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by such Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a “Buy-In”),
then the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder was entitled to receive from the
conversion at

13

issue multiplied by (2) the actual sale price at which the sell order giving
rise to such purchase obligation was executed (including any brokerage
commissions) and (B) at the option of the Holder, either reissue (if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied with
its delivery requirements under Section 4(d)(ii).  For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Debenture with respect to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000.  The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In
and, upon request of the Company, evidence of the amount of such loss.  Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
conversion of this Debenture as required pursuant to the terms hereof.

 

vi.

Reservation of Shares Issuable Upon Conversion. The Company covenants that it
will at all times reserve and keep available out of its authorized and unissued
shares of Common Stock for the sole purpose of issuance upon conversion of this
Debenture and payment of interest on this Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase rights of
Persons other than the Holder (and the other holders of the Debentures), not
less than such aggregate number of shares of the Common Stock as shall (subject
to the terms and conditions set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 5) upon the
conversion of the outstanding principal amount of this Debenture and payment of
interest hereunder.  The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public sale in
accordance with such Registration Statement.

vii.

Fractional Shares. Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the VWAP at such time.  If the Company elects not,
or is unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, 1 whole share of Common
Stock.

14

viii.

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

Section 5.

Certain Adjustments.

 

a)

Stock Dividends and Stock Splits.  If the Company, at any time while this
Debenture is outstanding: (A) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company upon
redemption of, conversion of, or payment of interest on, the Debentures); (B)
subdivides outstanding shares of Common Stock into a larger number of shares;
(C) combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares; or (D) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Company) outstanding immediately before such event and of
which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event.  Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

 

b)

Subsequent Equity Sales.  If, at any time while this Debenture is outstanding,
 the Company or any Subsidiary, as applicable, sells or grants any option to
purchase or sells or grants any right to reprice, or otherwise disposes of or
issues (or announces any sale, grant or any option to purchase or other
disposition), any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock at an effective price per share that is lower
than the then Conversion Price (such lower price, the “Base Conversion Price”
and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the
Common Stock or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
per share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share that is lower
than the Conversion Price, such issuance shall be deemed to have occurred for
less than the

15

Conversion Price on such date of the Dilutive Issuance), then the Conversion
Price shall be reduced to equal the Base Conversion Price.  Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are issued.
 Notwithstanding the foregoing, no adjustment will be made under this Section
5(b) in respect of an Exempt Issuance or any other transaction contemplated by
the Transaction Documents.  The Company shall notify the Holder in writing, no
later than 1 Business Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this Section 5(b), indicating therein the
applicable issuance price, or applicable reset price, exchange price, conversion
price and other pricing terms (such notice, the “Dilutive Issuance Notice”).
 For purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
Dilutive Issuance, the Holder is entitled, upon subsequent conversion or
redemption, to receive a number of Conversion Shares based upon the Base
Conversion Price on or after the date of such Dilutive Issuance, regardless of
whether the Holder accurately refers to the Base Conversion Price in the Notice
of Conversion.

c)

Subsequent Rights Offerings.  If the Company, at any time while the Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share that is lower than the VWAP on the record date
referenced below, then the Conversion Price shall be multiplied by a fraction of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered (assuming delivery to the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such VWAP.
 Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights, options or warrants.  

 

d)

Pro Rata Distributions. If the Company, at any time while this Debenture is
outstanding, distributes to all holders of Common Stock (and not to the Holders)
evidences of its indebtedness or assets (including cash and cash dividends) or
rights or warrants to subscribe for or purchase any security (other than the
Common Stock, which shall be subject to Section 5(b)), then in each such case
the Conversion Price shall be adjusted by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to 1 outstanding share of the Common
Stock as determined by the Board of Directors of the Company in good faith.  In
either case the adjustments shall be described in a statement delivered to the
Holder describing

16

the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to 1 share of Common Stock.  Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

 

e)

Fundamental Transaction. If, at any time while this Debenture is outstanding,
(A) the Company effects any merger or consolidation of the Company with or into
another Person, (B) the Company effects any sale of all or substantially all of
its assets in one transaction or a series of related transactions, (C) any
tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then, upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of 1 share of Common Stock (the
“Alternate Consideration”).  For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of 1 share of Common Stock in such Fundamental Transaction,
and the Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration.  If holders of Common Stock
are given any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any conversion of this Debenture
following such Fundamental Transaction.  To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving entity in
such Fundamental Transaction shall issue to the Holder a new debenture
consistent with the foregoing provisions and evidencing the Holder’s right to
convert such debenture into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this Section 5(e) and insuring that this Debenture (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

f)

Milestone-Related Adjustment.  The Conversion Price shall be permanently and
cumulatively reduced, and only reduced, upon the occurrence of any of the
following events as follows:

(i)

if, for the six month period commencing on October 1, 2006 and ending on March
31, 2007 (such period, the “Six Month Period”), the Company

17

shall fail to have achieved any of the following: (A) reported Revenue during
the Six Month Period of at least $1,000,000, as reported in the Company’s Form
10-K for the fiscal quarter ending on December 31, 2006 and in the Company’s
Form 10-Q for the fiscal quarter ending on March 31, 2007, each as filed with
the Commission, (B) obtained authorization for the use and sale of PinPoint in
the Russian Federation, as reported by the Company in a widely-disseminated
press release or in a current or periodic report filed with the Commission, or
(C) prepared and filed an application for grant funding under the Howard
University-NCMS Technology Transfer Initiative-Proposed Project for
Commercialization to expand the current database of mammography with additional
radiologist reviews and images produced to enhance the visibility of tissue
types in the original image with the objective to provide a better resource for
radiologists studying breast cancer and as a methodology for radiological
training of mammography, as reported by the Company in a widely-disseminated
press release or in a current or periodic report filed with the Commission, the
Conversion Price shall be the lesser of (Y) the then Conversion Price and (Z)
85% of the volume weighted average price for the 5 Trading Days immediately
prior to the date that the Company’s Form 10-Q for the fiscal quarter ending on
March 31, 2007 is filed with the Commission, provided that if such filing is
made after May 15, 2007, 85% of the lesser of (1) the volume weighted average
price for the 5 Trading Days immediately prior to May 16, 2007 and (2) the
volume weighted average price for the 5 Trading Days immediately prior to the
date such filing is actually made, provided that if the Company fails to make a
widely-disseminated press release or to file a current or periodic report with
the Commission by March 31, 2007 to report the milestone set forth in clause
5(f)(i)(B) or clause 5(f)(i)(C) herein, such milestone shall be irrevocably
deemed to have not occurred;

(ii)

if, by April 30, 2007, the Company has failed to receive an affirmative final
report and evaluation of PinPoint from the Transportation Security Laboratory of
the Science and Technology Directorate of the Department of Homeland Security,
as reported by the Company in a widely-disseminated press release or in a
current or periodic report filed with the Commission, the Conversion Price shall
be the lesser of (Y) the then Conversion Price and (Z) 85% of the volume
weighted average price for the 5 Trading Days immediately prior to April 30,
2007, provided that if the Company fails to make a widely-disseminated press
release or to file a current or periodic report with the Commission by April 30,
2007 to report the milestone set forth in this Section 5(f)(ii), such milestone
shall be irrevocably deemed to have not occurred;

(iii)

if, for the twelve month period commencing on October 1, 2006 and ending on
September 30, 2007 (such period, the “Twelve Month Period”), the Company shall
fail to have achieved any of the following: (A) reported Revenue during the
Twelve Month Period of at least $15,000,000 as reported in the Company’s Form
10-K for the fiscal quarter ending on December 31, 2006, the Company’s Form 10-Q
for the fiscal quarter ending on March 31, 2007, the

18

Company’s Form 10-Q for the fiscal quarter ending on June 30, 2007 and the
Company’s Form 10-Q for the fiscal quarter ending on September 30, 2007, each as
filed with the Commission, (B) submitted an application to the General
Administration of Civil Aviation of China for review and approval of the
Company’s licensing, sale and/or distribution of PinPoint in China, as reported
by the Company in a widely-disseminated press release or in a current or
periodic report filed with the Commission, or (C) received a grant in connection
with the application referred to in Section 5(f)(i)(C) above, as reported by the
Company in a widely-disseminated press release or in a current or periodic
report filed with the Commission, the Conversion Price shall be the lesser of
(Y) the then Conversion Price and (Z) 85% of the volume weighted average price
for the 5 Trading Days immediately prior to the date that the Company’s Form
10-Q for the fiscal quarter ending on September 30, 2007 is filed with the
Commission, provided that if such filing is made after November 15, 2007, 85% of
the lesser of (1) the volume weighted average price for the 5 Trading Days
immediately prior to November 16, 2007 and (2) the volume weighted average price
for the 5 Trading Days immediately prior to the date such filing is actually
made, provided that if the Company fails to make a widely-disseminated press
release or to file a current or periodic report with the Commission by September
30, 2007 to report the milestone set forth in clause 5(f)(iii)(B) or clause
5(f)(iii)(C) herein, such milestone shall be irrevocably deemed to have not
occurred; or

(iv)

if, for the eighteen month period commencing on October 1, 2006 and ending on
March 31, 2008 (such period, the “Eighteen Month Period”), the Company shall
fail to have achieved any of the following: (A) reported Revenue during such
Eighteen Month Period of at least $30,000,000 as reported in the Company’s Form
10-K for the fiscal quarter ending on December 31, 2006, the Company’s Form 10-Q
for the fiscal quarter ending on March 31, 2007, the Company’s Form 10-Q for the
fiscal quarter ending on June 30, 2007, the Company’s Form 10-Q for the fiscal
quarter ending on September 30, 2007, the Company’s Form 10-K for the fiscal
quarter ending on December 31, 2007 and the Company’s Form 10-Q for the fiscal
quarter ending on March 31, 2008, each as filed with the Commission, or (B)
submitted a pre-market notification application with the United States Food and
Drug Administration pursuant to Section 510(k) of the United States Food, Drug
and Cosmetic Act, as amended, and the related rules promulgated thereunder, with
regard to the process for computer aided detection utilizing the Company’s 3i
and/or related technology, as reported by the Company in a widely-disseminated
press release or in a current or periodic report filed with the Commission, the
Conversion Price shall be the lesser of (Y) the then Conversion Price and (Z)
85% of the volume weighted average price for the 5 Trading Days immediately
prior to the date that the Company’s Form 10-Q for the fiscal quarter ending on
March 31, 2008 is filed with the Commission, provided that if such filing is
made after May 15, 2008, 85% of the lesser of (1) the volume weighted average
price for the 5 Trading Days immediately prior to May 16, 2008 and (2) the
volume weighted average

19

price for the 5 Trading Days immediately prior to the date such filing is
actually made, provided that if Company fails to make a widely-disseminated
press release or to file a current or periodic report with the Commission by
March 31, 2008 to report the milestone set forth in clause 5(f)(iv)(B) herein,
such milestone shall be irrevocably deemed to have not occurred.

Each such adjustment shall be effective as of the first day of the following
period (by way of example, if Revenue requirement is not met for the Six Month
Period ending March 31, 2007, the reduction is effective immediately on April 1,
2007).  As to any conversions by the Holder that occurred following the end of a
quarter but prior to the date the Company’s periodic report was filed (“Interim
Period”), the Company shall retroactively send the Holder additional Conversion
Shares within 3 Trading Days of the date of the applicable filing if an
adjustment is required hereunder.  The number of additional Conversion Shares
issued shall be equal to the number of Conversion Shares receivable from such
conversions based on the adjusted Conversion Price less any Conversion Shares
previously received on account of such conversions.  Any subsequent restatements
of the Company’s financials shall require similar retroactive issuances if the
aforementioned events are subsequently deemed to have occurred.  The Company
shall provide written notice to the Holder no later than 1 Business Day
following the Company’s filing of the applicable periodic report with the
Commission, indicating therein the new Conversion Price and the Revenue for the
applicable quarter.  In the event that there is an adjustment to the Conversion
Price pursuant to any other provision under this Section 5 during the Interim
Period, the Conversion Price shall be the lower of (i) the Conversion Price as
adjusted pursuant to the other provisions of this Section 5 and (ii) the new
Conversion Price as determined hereunder.  Notwithstanding anything herein to
the contrary, (i) the provision shall only have the effect of reducing the
Conversion Price and (ii) each adjustment shall be permanent notwithstanding
future Revenue or the achievement of any other milestones and cumulative with
any other adjustments hereunder.

 

g)

Calculations.  All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.  For
purposes of this Section 5, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding any treasury shares of the Company) issued and
outstanding.

h)

Notice to the Holder.

i.

Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted
pursuant to any provision of this Section 5, the Company shall promptly mail to
each Holder a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.  If
the Company issues a variable rate security, despite the prohibition thereon in
the Purchase Agreement, the Company shall be deemed to have issued Common Stock
or Common Stock Equivalents at the lowest possible conversion

20

or exercise price at which such securities may be converted or exercised in the
case of a Variable Rate Transaction (as defined in the Purchase Agreement).

 

ii.

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

  

Section 6.

Optional Redemption.

a)

Optional Redemption at Election of Company.   Subject to the provisions of this
Section 6, at any time after the Effective Date, if the Closing Price on each of
20 consecutive Trading Days (the “ Measurement Period ,” which 20 consecutive
Trading Day period shall not have commenced until after the Effective Date)
exceeds $1.7345 (subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like that occur after the Original
Issue Date) the Company may, within 1 Trading Day of the end of such Measurement
Period, deliver a notice to the Holder (an “ Optional Redemption Notice ” and
the

21

date such notice is deemed delivered hereunder, the “ Optional Redemption Notice
Date ”) of its irrevocable election to redeem some or all of the then
outstanding principal amount of this Debenture for cash in an amount equal to
the Optional Redemption Amount on the 20th Trading Day following the Optional
Redemption Notice Date (such date, the “ Optional Redemption Date ” and such
redemption, the “ Optional Redemption ”).  The Optional Redemption Amount is
payable in full on the Optional Redemption Date.  The Company may only effect an
Optional Redemption if each of the Equity Conditions shall have been met on each
Trading Day during the period commencing on the Optional Redemption Notice Date
through to the Optional Redemption Date and through and including the date
payment of the Optional Redemption Amount is actually made .  If any of the
Equity Conditions shall cease to be satisfied at any time during the 20 Trading
Day period, then the Holder may elect to nullify the Optional Redemption Notice
by notice to the Company within 3 Trading Days after the first day on which any
such Equity Condition has not been met (provided, however, that if, by a
provision of the Transaction Documents, the Company is obligated to notify the
Holder of the non-existence of an Equity Condition, such notice period shall be
extended to the third Trading Day after proper notice from the Company) in which
case the Optional Redemption Notice shall be null and void, ab initio .  The
Company covenants and agrees that it will honor all Notices of Conversion
tendered from the time of delivery of the Optional Redemption Notice through the
date all amounts owing thereon are due and paid in full.

b)

Redemption Procedure.  The payment of cash pursuant to an Optional Redemption
shall be payable on the Optional Redemption Date.  If any portion of the payment
pursuant to an Optional Redemption shall not be paid by the Company by the
applicable due date, interest shall accrue thereon at an interest rate equal to
the lesser of 18% per annum or the maximum rate permitted by applicable law
until such amount is paid in full.  Notwithstanding anything herein contained to
the contrary, if any portion of the OptionalRedemption Amount remains unpaid
after such date, the Holder may elect, by written notice to the Company given at
any time thereafter, to invalidate such Optional Redemption, ab initio, and,
with respect to the Company’s failure to honor the Optional Redemption, the
Company shall have no further right to exercise such Optional Redemption.
 Notwithstanding anything to the contrary in this Section 6, the Company’s
determination to redeem under Section 6(a) shall be applied ratably among the
Holders of Debentures. The Holder may elect to convert the outstanding principal
amount of the Debenture pursuant to Section 4 prior to actual payment in cash
for any redemption under this Section 6 by the delivery of a Notice of
Conversion to the Company.

Section 7.

Negative Covenants. As long as any portion of this Debenture remains
outstanding, without the prior written consent of Holders holding at least 75%
of the then outstanding principal amount of Debentures, the Company shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly:

22

c)

other than Permitted Indebtedness or as contemplated by the Transaction
Documents, enter into, create, incur, assume, guarantee or suffer to exist any
indebtedness for borrowed money of any kind, including but not limited to, a
guarantee, on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits therefrom;

 

d)

other than Permitted Liens, enter into, create, incur, assume or suffer to exist
any Liens of any kind, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits
therefrom;

e)

amend its charter documents, including, without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;

f)

repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of Common Stock or Common Stock Equivalents other
than as to (a) the Conversion Shares or Warrant Shares as permitted or required
under the Transaction Documents and (b) repurchases of Common Stock or Common
Stock Equivalents of departing officers and directors of the Company, provided
that all repurchases from such departing officers and directors shall not exceed
an aggregate of $150,000 in any 12 month period;

g)

other than as contemplated by the Transaction Documents, pay cash dividends or
distributions on any equity securities of the Company;

h)

enter into any transaction with any Affiliate of the Company which would be
required to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or

i)

enter into any agreement with respect to any of the foregoing .

 

Section 8.

Events of Default.  

a)

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

i.

any default in the payment of (A) the principal amount of any Debenture or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or

23

otherwise) which default, solely in the case of an interest payment or other
default under clause (B) above, is not cured within the earlier to occur of (A)
5 Trading Days after notice of such default sent by the Holder or by any other
Holder and (B) 10 Trading Days after the Company has become or should have
become aware of such default ;

 

ii.

the Company shall fail to materially observe or perform any other covenant or
agreement contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (xi) below) which failure is not cured, if
possible to cure, within the earlier to occur of (A) 5 Trading Days after notice
of such failure sent by the Holder or by any other Holder and (B) 10 Trading
Days after the Company has become or should have become aware of such failure;

iii.

a default or event of default (subject to any grace or cure period provided in
the applicable agreement, document or instrument) shall occur under (A) the
Transaction Documents other than the Debentures or (B) any other material
agreement, lease, document or instrument included as an exhibit to the SEC
Reports and to which the Company or any Subsidiary is obligated (and not covered
by clause (vi) below), provided that such default or event of default could
result in a Material Adverse Effect;

iv.

any representation or warranty made in this Debenture, any other Transaction
Documents, any written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder or any other
Holder shall be untrue or incorrect in any material respect as of the date when
made or deemed made;

v.

the Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;

 

vi.

the Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $150,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

vii.

the Common Stock shall not be eligible for listing or quotation for trading on a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days;

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viii.

unless the Holders of at least 67% in principal amount of the then outstanding
Debentures shall otherwise consent in writing, the Company shall be a party to
any Change of Control Transaction or Fundamental Transaction or shall agree to
sell or dispose of all or in excess of 33% of its assets in one transaction or a
series of related transactions (whether or not such sale would constitute a
Change of Control Transaction);

ix.

a Registration Statement shall not have been declared effective by the
Commission on or prior to the 240th calendar day after the Closing Date;

x.

if, during the Effectiveness Period (as defined in the Registration Rights
Agreement), either (a) the effectiveness of the Registration Statement lapses
for any reason or (b) the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement) under the
Registration Statement for a period of more than 20 consecutive Trading Days or
40 non-consecutive Trading Days during any 12 month period; provided, however,
that if any such periods are solely caused by any material pending corporate
mergers or acquisitions with respect to the Company that the Company believes,
in good faith, make it not in the best interests of the Company to allow the
continued availability of the Registration Statement, up to 60 consecutive
Trading Days or 90 non-consecutive Trading Days during any 12 month period;
provided, further, if the Holder shall not be permitted to resell Registrable
Securities under the Registration Statement solely because such Holder fails to
provide to the Company a certified statement as to the number of shares of
Common Stock beneficially owned by such Holder and, if required by the
Commission, the natural persons thereof that have voting and dispositive control
over the Shares, as contemplated by Section 3(b) of the Registration Rights
Agreement, the period of 20 consecutive Trading Days or 40 non-consecutive
Trading Days set forth in this Section 8(a)(x) shall be tolled as to such Holder
only;

xi.

the Company shall fail for any reason to deliver certificates to a Holder prior
to the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or
the Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof; or

xii.

any monetary judgment, writ or similar final process shall be entered or filed
against the Company, any Subsidiary or any of their respective property or other
assets for more than $150,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 60 calendar days.

25

b)

Remedies Upon Event of Default. If any Event of Default occurs, the outstanding
principal amount of this Debenture, plus accrued but unpaid interest, liquidated
damages and other amounts owing in respect thereof through the date of
acceleration, shall become, at the Holder’s election, immediately due and
payable in cash at the Mandatory Default Amount.  Commencing 5 days after the
occurrence of any Event of Default that results in the eventual acceleration of
this Debenture, the interest rate on this Debenture shall accrue at an interest
rate equal to the lesser of 18% per annum or the maximum rate permitted under
applicable law.  Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Debenture to or as directed by the Company.
 In connection with such acceleration described herein, the Holder need not
provide, and the Company hereby waives, any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law.  Such acceleration may
be rescinded and annulled by Holder at any time prior to payment hereunder and
the Holder shall have all rights as a holder of the Debenture until such time,
if any, as the Holder receives full payment pursuant to this Section 8(b).  No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.

Section 9.

Miscellaneous.  

 

a)

Notices.  Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, or sent
by a nationally recognized overnight courier service, addressed to the Company,
at the address set forth above, facsimile number (703) 464-8530, Attn: Chief
Executive Officer or such other facsimile number or address as the Company may
specify for such purpose by notice to the Holder delivered in accordance with
this Section 9.  Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, or sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile number or address of such Holder
appearing on the books of the Company, or if no such facsimile number or address
appears, at the principal place of business of the Holder.  Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section 9
prior to 5:30 p.m. (New York City time), (ii) the date immediately following the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section 9 between 5:30 p.m. (New York
City time) and 11:59 p.m. (New York City time) on any date, (iii) the second
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.

 

b)

Absolute Obligation. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and

26

unconditional, to pay the principal of, liquidated damages and accrued interest,
as applicable, on this Debenture at the time, place, and rate, and in the coin
or currency, herein prescribed.  This Debenture is a direct debt obligation of
the Company.  This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein.   

 

c)

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

d)

Governing Law; Arbitration.  This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.  Any controversy
or claim arising out of or related to this Debenture or the breach thereof,
shall be settled by binding arbitration in New York, New York in accordance with
the Expedited Procedures (Rules 53-57) of the Commercial Arbitration Rules of
the American Arbitration Association (“AAA”).  A proceeding shall be commenced
upon written demand by the Company or Buyer to the other.  The arbitrator(s)
shall enter a judgment by default against any party, which fails or refuses to
appear in any properly noticed arbitration proceeding.  The proceeding shall be
conducted by one (1) arbitrator, unless the amount alleged to be in dispute
exceeds two hundred fifty thousand dollars ($250,000), in which case three (3)
arbitrators shall preside.  The arbitrator(s) will be chosen by the parties from
a list provided by the AAA, and if the parties are unable to agree within ten
(10) days, the AAA shall select the arbitrator(s).  The arbitrators must be
experts in securities law and financial transactions.  The arbitrators shall
assess costs and expenses of the arbitration, including all attorneys’ and
experts’ fees, as the arbitrators believe is appropriate in light of the merits
of the parties’ respective positions in the issues in dispute.  Each party
submits irrevocably to the jurisdiction of any state court sitting in New York,
New York or to the United States District Court sitting in New York, New York
for purposes of enforcement of any discovery order, judgment or award in
connection with such arbitration.  The award of the arbitrator(s) shall be final
and binding upon the parties and may be enforced in any court having
jurisdiction.  The arbitration shall be held in such place as set by the
arbitrator(s) in accordance with Rule 55.  With respect to any arbitration
proceeding in accordance with this section, the prevailing party’s reasonable
attorney’s fees and expenses shall be borne by the non-prevailing party.

Although the parties, as expressed above, agree that all claims, including
claims that are equitable in nature, for example specific performance, shall
initially be prosecuted in the binding arbitration procedure outlined above, if
the arbitration panel dismisses or otherwise fails to entertain any or all of
the equitable claims asserted by reason of the fact that it lacks jurisdiction,
power and/or authority to consider such

27

claims and/or direct the remedy requested, then, in only that event, will the
parties have the right to initiate litigation respecting such equitable claims
or remedies.  The forum for such equitable relief shall be in either a state or
federal court sitting in New York, New York.  Each party waives any right to a
trial by jury, assuming such right exists in an equitable proceeding, and
irrevocably submits to the jurisdiction of said New York court.  New York law
shall govern both the proceeding as well as the interpretation and construction
of this Agreement and the transaction as a whole.

 

e)

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

 

f)

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

 

g)

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

h)

Headings.  The headings contained herein are for convenience only, do not
constitute a part of this Debenture and shall not be deemed to limit or affect
any of the provisions hereof.

i)

Assumption.  Any successor to the Company or any surviving entity in a
Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction,
all of the obligations of the Company under this Debenture and the other
Transaction

28

Documents pursuant to written agreements in form and substance satisfactory to
the Holder (such approval not to be unreasonably withheld or delayed) and (ii)
issue to the Holder a new debenture of such successor entity evidenced by a
written instrument substantially similar in form and substance to this
Debenture, including, without limitation, having a principal amount and interest
rate equal to the principal amount and the interest rate of this Debenture and
having similar ranking to this Debenture, which shall be satisfactory to the
Holder (any such approval not to be unreasonably withheld or delayed).  The
provisions of this Section 9(i) shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
of this Debenture.

*********************

29

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

GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

By:__________________________________________

     Name:

     Title:

30

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Series A 10% Senior
Convertible Debenture due November __, 2008 of Guardian Technologies
International, Inc., a Delaware corporation (the “Company”), into shares of
common stock, par value $0.001 per share (the “Common Stock”), of the Company
according to the conditions hereof, as of the date written below.  If shares of
Common Stock are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith.  No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Debenture, as determined in
accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.  

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Payment of Interest in Common Stock __ yes  __ no

If yes, $_____ of Interest Accrued on Account of Conversion at Issue.

Number of shares of Common Stock to be issued:

Signature:

Name:

Address:

31

Schedule 1

CONVERSION SCHEDULE

The Series A 10% Senior Convertible Debentures due on November __, 2008 in the
aggregate principal amount of $_______ is issued by Guardian Technologies
International, Inc.  This Conversion Schedule reflects conversions made under
Section 4 of the above referenced Debenture.

Dated:

Date of Conversion

(or for first entry, Original Issue Date)

Amount of Conversion

Aggregate Principal Amount Remaining Subsequent to Conversion

(or original Principal Amount)

Company Attest

 

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