Exhibit 10.1

DEBENTURE AND WARRANT PURCHASE AGREEMENT

DATED AS OF AUGUST 18, 2008

BY AND BETWEEN

ELECTRO ENERGY, INC.

AND

THE QUERCUS TRUST

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TABLE OF CONTENTS

Page   DEBENTURE AND WARRANT PURCHASE AGREEMENT 1   ARTICLE I PURCHASE AND SALE
OF WARRANT 1   1.1. Purchase and Sale of Debentures and Warrants 1   ARTICLE II
REPRESENTATIONS AND WARRANTIES 2   2.1. Representations and Warranties of the
Company 2   2.2. Representations and Warranties of the Purchaser 3   ARTICLE III
COVENANTS 3   3.1. Securities Compliance 4   3.2. Registration and Listing 4  
3.3. Inspection Rights 4   3.4. Compliance with Laws 4   3.5. Keeping of Records
and Books of Account 4   3.6. Reporting Requirements 5   3.7. Other Agreements 5
  3.8. Use of Proceeds 5   3.9. Reporting Status 5   3.10. Disclosure of
Transaction 5   3.11. Amendments 5   3.12. Reservation of Shares 5   3.13.
Transfer Agent Instructions 6   3.14. Form S-3 Eligibility 6   3.19 Board
Representation 8   ARTICLE IV CONDITIONS 8   4.1. Conditions Precedent to the
Obligation of the Company to Close and to Sell the Securities 8   4.2.
Conditions Precedent to the Obligation of the Purchaser to Close and to Purchase
the Securities 9   ARTICLE V CERTIFICATE LEGEND 10   5.1. Legend 10   ARTICLE VI
INDEMNIFICATION 11   6.1. Company Indemnity 11   6.2. Indemnification Procedure
12   ARTICLE VII MISCELLANEOUS 13   7.1 Protective Provisions 13   7.2
Amendments to Registration Rights Agreements 13   7.3 Amendments to Existing
Warrant 13   7.4 Amendments to Existing Debenture 14

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TABLE OF CONTENTS
(continued)

Page     7.5 Amendment to Security Agreement 14   7.6 Short Sales 14   7.7 Fees
and Expenses 14   7.1. Specific Performance; Consent to Jurisdiction; Venue 14  
7.11 Waivers 16   7.12 Headings 16   7.13 Successors and Assigns 16   7.15
Governing Law 16   7.16 Survival 17   7.17 Counterparts 17   7.18 Publicity 17  
7.19 Severability 17   7.20 Further Assurances 17

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DEBENTURE AND WARRANT PURCHASE AGREEMENT

        This DEBENTURE AND WARRANT PURCHASE AGREEMENT, dated as of August 18,
2008 (this “Agreement”), by and between Electro Energy, Inc., a Florida
corporation (the “Company”), and The Quercus Trust (the “Purchaser”).

W I T N E S S E T H:

        WHEREAS, the parties hereto entered into that certain Debenture and
Warrant Purchase Agreement, dated as of December 7, 2007 (the “2007 Purchase
Agreement”), and capitalized terms contained herein, to the extent they are not
defined herein, shall have the meanings as may be expressly provided in the 2007
Purchase Agreement.

        WHEREAS, the parties hereto entered into that certain Warrant Purchase
Agreement, dated July 23, 2008 (the “July, 2008 Warrant Purchase Agreement”).

        WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the “Securities Act”), the Company
desires to issue and sell to the Purchaser, and the Purchaser desires to
purchase from the Company, securities of the Company as more fully described in
this Agreement.

        NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

PURCHASE AND SALE OF DEBENTURES AND WARRANTS

                1.1.    Purchase and Sale of Debentures and Warrants.

                (a)     Upon the following terms and conditions, and upon each
of two (2) of Purchaser’s notifications to the Company that the Comapny has
reached a set of business milestones, set forth on Schedule 1.1(a) hereto (each,
a “Milestone Set”), the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase from the Company, a 10% Senior Secured Convertible
Debenture in the principal amount of Six Hundred Twenty Five Thousand Dollars
($625,000), in the form attached hereto as Exhibit A (each a “Debenture”). The
Company and the Purchaser are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the Securities Act, including Regulation D
(“Regulation D”), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to the
investment to be made hereunder.

                (b)     Upon the terms and conditions contained herein, and upon
each of two (2) of Purchaser’s notifications to the Company that the Company has
reached a Milestone Set , the Company shall issue to Purchaser a Warrant to
Purchase Common Stock, in substantially the form attached hereto as Exhibit B
(each, a “Warrant”), to purchase up to One Million Five Hundred Sixty-Two
Thousand Five Hundred (1,562,500) shares of the Company’s common stock, par
value $0.001 per share (the “Common Stock”). Each Warrant shall expire three (3)
years following the date of its issuance and shall have an exercise price per
share equal to the Warrant Price (as defined in the Warrant).

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                (c)     Purchase Price. Subject to the terms and conditions
hereof and upon the Company’s reaching each of the two Milestone Sets, the
Company agrees to issue and sell to the Purchaser and, in consideration of and
in express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Purchaser agrees to purchase, a Debenture and
a Warrant for a purchase price of Six Hundred Twenty-Five Thousand Dollars
($625,000) (the “Purchase Price”), in cash.

                (d)     Closing. The closing of the purchase and sale of the
first of two Debentures and Warrants to be acquired by the Purchaser from the
Company under this Agreement shall take place at the offices of Lev & Berlin,
P.C., 200 Connecticut Avenue, 5th Floor, Norwalk, Connecticut 06854 at 10:00
a.m., Eastern time, (i) on August 18, 2008; provided, that all of the conditions
set forth in Article IV hereof and applicable to the Closing shall have been
fulfilled or waived in accordance herewith, or (ii) at such other time and place
or on such date as the Purchaser and the Company may agree upon (the “First
Closing Date”). The closing of the purchase and sale of the second of two sets
of Debentures and Warrants to be acquired by the Purchaser from the Company
under this Agreement shall take place at the offices of Lev & Berlin, P.C. at
10:00 a.m., Eastern time, (i) on that date that is within three business days of
the Purchaser’s notification to the Seller that the second Milestone Set has
been reached, provided that all of the conditions set forth in Article IV hereof
and applicable to the Closing shall have been fulfilled or waived in accordance
herewith, or (ii) at such other time and place or on such date as the Purchaser
and the Company may agree upon (the “Second Closing Date”). Subject to the terms
and conditions of this Agreement, at each Closing Date the Company shall deliver
or cause to be delivered to the Purchaser a Debenture and a Warrant and any
other documents required to be delivered pursuant to Article IV hereof. At each
closing, the Purchaser shall deliver the Purchase Price by wire transfer to a
bank account designated by the Company.

                (e)     Underlying Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of Common Stock to effect the conversions of the
Debentures and exercises of the Warrants Any shares of Common Stock issuable
upon conversion of the Debentures and exercise of the Warrants (and such shares
when issued) are herein referred to as the “Underlying Shares.” The Debentures
and the Warrants, and the Underlying Shares are sometimes collectively referred
to herein as the “Securities.”

ARTICLE II

REPRESENTATIONS AND WARRANTIES

                2.1.     Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchaser, as of the date hereof
and the Closing Date (except as set forth below; and as may be modified by or
updated by the Commission Documents) that the Company’s representations and
warranties set forth in Section 2.1 of the 2007 Purchase Agreement are hereby
repeated and incorporated herein by reference with the following modifications
and additions:

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                (a)     Capitalization. The authorized capital stock of the
Company as of the date hereof is set forth on Schedule 2.1(a) hereto.

                (b)     Commission Documents; Financial Statements. At the times
of their respective filings, the Forms 10-QSB (or Form 10-Q, as the case may be)
for the three most recent fiscal quarters (collectively, the “Forms 10-QSB”) and
the Form 10-KSB for the fiscal year ended December 31, 2007 (the “Form 10-KSB”)
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and the
Forms 10-QSB and Form 10-KSB did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.

                (c)     Ratification of Price Adjusment to Securities. Upon the
issuance of a Debenture and a Warrant as provided herein, in accordance with
Section 5(d) of the warrant that the Company issued to the Purchaser pursuant to
the 2007 Purchase Agreement, on December 7, 2007 (the “2007 Warrant”), the
Warrant Price, as that term is defined therein, shall be reduced to $1.25.

                (d)     Ranking of Securities Issued to KIT Financial, Inc. The
$500,000 Senior Secured Convertible Debenture to be issued to KIT Financial,
Inc. (“KIT”), or any of its affiliates (the “KIT Debenture”) shall rank in
payment and security (i) junior to that certain 10% Senior Secured Convertible
Debenture issued to the Purchaser pursuant to the 2007 Purchase Agreement and
(ii) pari passu to the Debentures issued to the Purchaser pursuant hereto. .

                2.2.     Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows as of the
date hereof and as of the Closing Date that the Purchaser’s representations and
warranties that are set forth in Sections 2.2 of the 2007 Purchase Agreement are
hereby repeated and incorporated herein by reference. The Purchaser also hereby
waives the right of first refual contained in Section 3.18 of the 2007 Purchase
Agreement with respect to the issuance and sale by the Company of the KIT
Debenture and those certain warrants to purchase the Company’s Stock to be
issued to KIT in connection with its purchase of the KIT Debenture.

ARTICLE III

COVENANTS

        The Company covenants with the Purchaser as follows, which covenants are
for the benefit of the Purchaser and its permitted assignees.

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                3.1.    Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated herein and by any of the documents executed in connection herewith,
including the Debenture(s) and the Warrant(s) and the Registration Rights
Agreement, dated as of the date hereof (the “Transaction Documents”), and shall
take all other necessary action and proceedings as may be required and permitted
by applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Purchaser, or its subsequent holders.

                3.2.    Registration and Listing. The Company shall cause its
Common Stock to continue to be registered under Sections 12(g) of the Exchange
Act, to comply in all respects with its reporting and filing obligations under
the Exchange Act, to comply with all requirements related to any registration
statement filed pursuant to this Agreement, and to not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the Nasdaq
Capital Market or other exchange or market on which the Common Stock is trading.
Subject to the terms of the Transaction Documents, the Company further covenants
that it will take such further action as the Purchaser may reasonably request,
all to the extent required from time to time to enable the Purchaser to sell the
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144 promulgated under the Securities Act.
Upon the request of the Purchaser, the Company shall deliver to the Purchaser a
written certification of a duly authorized officer as to whether it has complied
with the issuer requirements of Rule 144.

                3.3.    Inspection Rights. Provided the same would not be in
violation of Regulation FD, the Company shall permit, during normal business
hours and upon reasonable request and reasonable advance notice, the Purchaser
or any employees, agents or representatives thereof, so long as the Purchaser
shall hold the Debenture or shall beneficially own any Underlying Shares, for
purposes reasonably related to the Purchaser’s interests as a stockholder, to
examine the publicly available, non-confidential records and books of account
of, and visit and inspect the properties, assets, operations and business of the
Company and any Subsidiary, and to discuss the publicly available,
non-confidential affairs, finances and accounts of the Company and any
Subsidiary with any of its officers, consultants, directors and key employees.

                3.4.    Compliance with Laws. The Company shall comply, and
cause each Subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which would be reasonably likely to have a
Material Adverse Effect.

                3.5.    Keeping of Records and Books of Account. The Company
shall keep and cause each Subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.

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                3.6.    Reporting Requirements. If the Commission ceases making
the Company’s periodic reports available via the Internet without charge, then
the Company shall furnish the following to the Purchaser so long as the
Purchaser shall beneficially own Securities:

                (a)     Quarterly Reports filed with the Commission on Form 10-Q
as soon as practical after the document is filed with the Commission, and in any
event within five (5) days after the document is filed with the Commission;

                (b)     Annual Reports filed with the Commission on Form 10-K as
soon as practical after the document is filed with the Commission, and in any
event within five (5) days after the document is filed with the Commission; and

                (c)     Copies of all notices, information and proxy statements
in connection with any meetings that are, in each case, provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.

                3.7.    Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.

                3.8.    Use of Proceeds. The net proceeds from the sale of the
Securities hereunder shall be used by the Company for working capital and
general corporate purposes, including growth initiatives.

                3.9.    Reporting Status. So long as the Purchaser beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the Commission pursuant to the Exchange Act, and the Company
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.

                3.10.    Disclosure of Transaction. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the “Press Release”) not later than the second Trading Day following the
Closing Date. The Company shall also file with the Commission a Current Report
on Form 8-K (the “Form 8-K”) describing the material terms of the transactions
contemplated hereby (and attaching as exhibits thereto this Agreement, the form
of Debenture and Warrant and the Press Release) as soon as practicable following
the Closing Date but in no event more than four (4) Trading Days following the
Closing Date, which Press Release and Form 8-K shall be subject to prior review
and reasonable comment by the Purchaser. “Trading Day” means any day during
which the principal exchange on which the Common Stock is traded shall be open
for trading.

                3.11.    Amendments. The Company shall not amend or waive any
provision of the Articles or By-laws of the Company in any way that would
adversely affect exercise rights, voting rights, or redemption rights of the
holder of the Securities.

                3.12.    Reservation of Shares. So long as any of the Debentures
or Warrants remain outstanding, the Company shall take all action necessary to
at all times have authorized and reserved for the purpose of issuance of a
sufficient number of shares of Common Stock needed to provide for the issuance
of the Underlying Shares.

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                3.13.    Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Purchaser, for the
Underlying Shares in such amounts as specified from time to time by the
Purchaser to the Company upon conversion of the Debentures or exercise of the
Warrants in the form of Exhibit D attached to the 2007 Purchase Agreement (the
“Irrevocable Transfer Agent Instructions”). Prior to registration of the
Underlying Shares under the Securities Act, all such certificates shall bear the
restrictive legend specified in Section 5.1 of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.13 will be given by the Company to
its transfer agent and that the Underlying Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement. If the Purchaser provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of the Underlying Shares may be made without
registration under the Securities Act or the Purchaser provides the Company with
reasonable assurances that the Underlying Shares can be sold pursuant to Rule
144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Underlying Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Purchaser and without any restrictive legend.

                3.14.    Form S-3 Eligibility. The Company currently meets the
“registrant eligibility” and transaction requirements set forth in the general
instructions to Form S-3 applicable to “resale” registrations on Form S-3 and
the Company shall file all reports required to be filed by the Company with the
Commission in a timely manner.

                3.15    Right of First Refusal.

                (a)     For the twelve (12) month period following the Closing,
the Purchaser will have the right of first refusal (the “Initial Purchase
Right”) to purchase, on the same terms as other investors, up to one hundred
percent (100%) of any debt securities, equity securities, securities convertible
into equity securities, or options or warrants therefor (“Purchase Securities”)
that the Company proposes to offer, other than the securities excluded by
paragraph (e) below.

                (b)     Subsequent to the twelve (12) month period following the
Closing, the Purchaser will have the right of first refusal (the “Pro-Rata
Purchase Right”) to purchase, on the same terms as other investors, that
percentage of any Purchase Securities that the Company proposes to offer, other
than the securities excluded by paragraph (e) below, which is equal to the
Purchaser’s pro rata ownership of the Common Stock of the Company on a fully
diluted basis. The Initial Purchase Right and the Pro-Rata Purchase Right are
collectively referred to herein as the “Purchase Rights”.

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                (c)     If the Company proposes to issue any Purchase
Securities, it shall give the Purchaser written notice of its intention,
describing the Purchase Securities, the price and the terms and conditions upon
which the Company proposes to issue the same, together with a signed and
accepted term sheet. The Purchaser shall have ten (10) Trading Days from the
giving of such notice to elect to purchase all or part (in the case of the
Initial Purchase Right), or part (in the case of the Pro-Rata Purchase Right),
of the Purchase Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of such Purchase Securities to be purchased.

                (d)     The Purchaser shall then effect the purchase of the
Purchase Securities at the closing of the issuance of Purchase Securities
described in the notice delivered by the Company pursuant to paragraph (c)
above. On the date of such closing, the Company shall deliver to the Purchaser
the certificates representing the Purchase Securities to be purchased by the
Purchaser, each certificate to be properly endorsed for transfer, and at such
time, the Purchaser shall pay the purchase price for the Purchase Securities.

                (e)     If the Purchaser fails to exercise in full its Purchase
Right, the Company shall have ninety (90) days thereafter to sell the Purchase
Securities in respect of which the Purchaser’s rights were not exercised, at a
price and upon general terms and conditions no more favorable to the purchaser
thereof than specified in the Company’s notice to the Purchaser pursuant to
paragraph (c) above. If the Company has not sold such Purchase Securities within
such ninety (90) days, the Company shall not thereafter issue or sell any
Purchase Securities, without first again complying with this Section 3.15.

                (f)     The Purchase Right established by this Section 3.15
shall have no application to any of the following issuances of Purchase
Securities (collectively, the “Excluded Securities”):

                  (i)        shares of Common Stock issued or issuable to
employees, directors or consultants pursuant to equity holder plans maintained
by the Company and registered with the Commission on Form S-8;

                  (ii)       shares of Common Stock issued or issuable upon the
exercise or conversion of currently outstanding options, warrants or convertible
securities; or

                  (iii)      shares of Common Stock issued or issuable upon any
conversion of the Debenture or exercise of the Warrants issued to the Purchaser
concurrently with the Debenture; or

                  (iv)       shares of Common Stock issued or issuable solely as
consideration for bank financings, equipment leases, investor relations/public
relations services, business acquisitions, mergers, strategic partnerships, or
public offerings.

                3.16    Consultant. The July, 2008 Warrant Purchase Agreement is
hereby amended to delete in its entirety Section 3.16 thereof, which relates to
Company’s engagement of the services of Mr. Lyle Deitch.

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                3.17    Prohibition from Exercise, Shareholder Approval. Until
the Company has obtained the approval of the transaction and issuance(s) of
securities contemplated herein by a majority of the Company’s holders of Common
Stock, which the Company shall use its commercially reasonable efforts to obtain
as soon as possible, but in no event later than the Company’s next annual
meeting, which shall be held no later than October 31, 2008, Purchaser shall not
convert either of the Debentures or exercise either of the Warrants to the
extent that the aggregate number of shares issuable upon such conversion or
exercise, together with (i) any penalty shares issued pursuant to the
Registration Rights Agreement between the Company and the original Holder
executed in connection with this transaction, and the Registration Rights
Agreement dated July 23, 2008, and (ii) shares of Common Stock that may have
been issued upon the exercise of the warrant issued to the Purchaser pursuant to
that certain Warrant Purchase Agreement dated July 23, 2008, results in an
aggregate issuance of that number of shares of Common Stock that, is greater
than Nineteen and Nine-Tenth’s percent (19.9%) of the Company’s total number of
outstanding shares of Common Stock as of July 23, 2008.

                3.18    Withdrawal of Registration Statement. The Company shall
promptly withdraw the Registration Statement that the Company submitted to the
SEC on July 10, 2008 and shall file a new registration statement within 90 days
of Purchaser’s written demand, as set forth in the Registration Rights
Agreements, dated December 7, 2007 and July 23, 2008, as amended by Section 7.2
hereof, and with the Registration Rights Agreement dated as of the date hereof.

                3.19    Board Representation. In the event that the Purchaser
does not exercise its right to appoint one representative to the Company’s Board
of Directors pursuant to the terms of the 2007 Purchase Agreement, it shall have
the right to appoint an observer of Board proceedings.

ARTICLE IV
CONDITIONS

                4.1.    Conditions Precedent to the Obligation of the Company to
Close and to Sell the Securities. The obligation hereunder of the Company to
close and issue and sell the Securities to the Purchaser at the Closing is
subject to the satisfaction or waiver, at or before the Closing of the
conditions set forth below. These conditions are for the Company’s sole benefit
and may be waived by the Company at any time in its sole discretion.

                (a)    Accuracy of the Purchaser’s Representations and
Warranties. The representations and warranties of the Purchaser shall be true
and correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of such date.

                (b)    Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Closing Date.

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                (c)    No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

                (d)    Delivery of Purchase Price. The Purchase Price for the
Securities shall have been delivered to the Company on each Closing Date.

                (e)    Delivery of Transaction Documents. The Transaction
Documents shall have been duly executed and delivered by the Purchaser to the
Company.

                4.2.    Conditions Precedent to the Obligation of the Purchaser
to Close and to Purchase the Securities. The obligation hereunder of the
Purchaser to purchase the Securities and consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for the Purchaser’s sole benefit and may be waived by the Purchaser at any
time in its sole discretion.

                (a)    Accuracy of the Company’s Representations and Warranties.
Each of the representations and warranties of the Company in this Agreement and
the other Transaction Documents shall be true and correct in all material
respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of the date when made and as of the Closing Date as though made at
that time, except for representations and warranties that are expressly made as
of a particular date, which shall be true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of such date.

                (b)    Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.

                (c)    No Suspension, Etc. Trading in the Common Stock shall not
have been suspended by the Commission or the Nasdaq Capital Market (except for
any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets (“Bloomberg”) shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported by Bloomberg, or on the New York Stock Exchange, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities, nor shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity or crisis of such
magnitude in its effect on, or any material adverse change in any financial
market which, in each case, in the judgment of the Purchaser, makes it
impracticable or inadvisable to purchase the Securities.

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                (d)    No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

                (e)    No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority, to the Company’s
knowledge, shall have been threatened, against the Company or any Subsidiary, or
any of the officers, directors or affiliates of the Company or any Subsidiary
seeking to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.

                (f)    Opinion of Counsel. The Purchaser shall have received an
opinion of counsel to the Company, dated the date of the Closing, substantially
in the form of Exhibit E annexed to the 2007 Purchase Agreement, with such
exceptions and limitations as shall be reasonably acceptable to counsel to the
Purchaser.

                (g)    Debenture and Warrant. At or prior to each Closing Date,
the Company shall have delivered to the Purchaser a Debenture and a Warrant (in
such denominations as the Purchaser may request).

                (h)    Officer’s Certificate. On the Closing Date, the Company
shall have delivered to the Purchaser a certificate signed by an executive
officer on behalf of the Company, dated as of the Closing Date, confirming the
accuracy of the Company’s representations, warranties and covenants as of the
Closing Date (except those representations and warranties made as of a specific
date) and confirming the compliance by the Company with the conditions precedent
set forth in paragraphs (b) to (e) and (i) of this Section 4.2 as of the Closing
Date (provided that, with respect to the matters in paragraphs (d) and (e) of
this Section 4.2, such confirmation shall be based on the knowledge of the
executive officer after due inquiry).

ARTICLE V

CERTIFICATE LEGEND

                5.1.    Legend. Each certificate representing the Securities
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or “blue sky” laws):

  THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
OR ELECTRO ENERGY, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.  

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        The Company agrees to issue or reissue certificates representing any of
the Underlying Shares, without the legend set forth above if at such time, prior
to making any transfer of any such Underlying Shares, such holder thereof shall
give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Underlying Shares under the Securities Act
is not required in connection with such proposed transfer, (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act, (iii) the Company has received other evidence reasonably
satisfactory to the Company that such registration and qualification under the
Securities Act and state securities laws are not required (which may include an
opinion of counsel provided by the Company), or (iv) the holder provides the
Company with reasonable assurances that such security can be sold pursuant to
Rule 144 under the Securities Act (which may include an opinion of counsel
provided by the Company); and (b) either (i) the Company has received an opinion
of counsel reasonably satisfactory to the Company, to the effect that
registration or qualification under the securities or “blue sky” laws of any
state is not required in connection with such proposed disposition, (ii)
compliance with applicable state securities or “blue sky” laws has been
effected, or (iii) the holder provides the Company with reasonable assurances
that a valid exemption exists with respect thereto (which may include an opinion
of counsel provided by the Company). The Company will respond to any such notice
from a holder within three (3) business days. In the case of any proposed
transfer under this Section 5.1, the Company will use commercially reasonable
efforts to comply with any such applicable state securities or “blue sky” laws,
but shall in no event be required, (x) to qualify to do business in any state
where it is not then qualified, (y) to take any action that would subject it to
tax or to the general service of process in any state where it is not then
subject, or (z) to comply with state securities or “blue sky” laws of any state
for which registration by coordination is unavailable to the Company. The
restrictions on transfer contained in this Section 5.1 shall be in addition to,
and not by way of limitation of, any other restrictions on transfer contained in
any other section of this Agreement. Whenever a certificate representing the
Underlying Shares is required to be issued to the Purchaser without a legend, in
lieu of delivering physical certificates representing the Underlying Shares,
provided the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer program, the Company shall
use its reasonable best efforts to cause its transfer agent to electronically
transmit the Underlying Shares to the Purchaser by crediting the account of the
Purchaser’s Prime Broker with DTC through its Deposit Withdrawal Agent
Commission (“DWAC”) system (to the extent not inconsistent with any provisions
of this Agreement).

ARTICLE VI

INDEMNIFICATION

                6.1.    Company Indemnity. The Company agrees to indemnify and
hold harmless the Purchaser (and its directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys’ fees, charges and disbursements) incurred by the Purchaser
as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein, and the Purchaser agrees to indemnify and
hold harmless the Company to the same extent as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchaser
herein.

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                6.2.    Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an “indemnified party”) will give written
notice to the indemnifying party of any matter giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnifying party a conflict of interest between it
and the indemnified party exists with respect to such action, proceeding or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party’s
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
obligations to defend the indemnified party required by this Article VI shall be
made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, so long as the indemnified party shall refund
such moneys if it is ultimately determined by a court of competent jurisdiction
that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law. No indemnifying party will be liable to the indemnified party under this
Agreement to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to the indemnified party’s breach of any of the
representations, warranties or covenants made by such party in this Agreement or
in the other Transaction Documents.

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ARTICLE VII

MISCELLANEOUS

                7.1    Protective Provisions. So long as at least an aggregate
of twenty-five percent (25%) of the original principal balances of (i) the
Debentures(s) and (ii) the KIT Debenture remain outstanding, consent of the
holders of a majority of the outstanding Debenture(s) shall be required for any
action (by merger, reclassification or otherwise) that (i) results in the
redemption or repurchase of any stock, (ii) results in any merger or other
corporate reorganization that results in a change of control of the Company, or
any transaction in which all or substantially all of the assets of the Company
are sold, (iii) authorizes the issuance of debt in excess of Five Hundred
Thousand Dollars ($500,000), (iv) changes the business of the Company, or
(v) involves any transaction or compensation arrangements between the Company
and its officers and directors. Notwithstanding the foregoing, upon successful
and timely completion of both Milestone Sets as set forth herein, and the
completion of the transactions contemplated and described herein, the Purchaser
will consent to an incentive and compensatory award by the Company of warrants
to members of the Company’s management equal to three percent (3%) of the number
of outstanding common shares of the Company on a fully-diluted basis at an
exercise price and other terms equivalent to those set forth herein, including
without limitation repricing and anti-dilution protection. One-third (?) of such
award will be made to the CEO and two-thirds (?) will be made to other members
of the management team and consultants at the discretion of the CEO, all subject
to reasonable approval of the grants by Investor.

                7.2    Amendments to Registration Rights Agreements. The
registration rights agreements between the Company and the Purchaser, dated
December 7, 2007 and July 23, 2008 are hereby amended to provide that the
Company shall file a Registration Statement covering all or a portion of the
Registrible Securities, as those terms are defined therein, as soon as possible
following Purchaser’s written request to do so, but in no event later than
ninety (90) days following such written request, subject to the terms and
conditions contained therein.

                7.3   Amendments to Existing Warrant. That certain warrant
issued to the Purchaser pursuant to the July, 2008 Warrant Purchase Agreement
(the “Existing Warrant”) is hereby amended as follows: (1) The Warrant Price is
reduced to $1.00 per share, (2) Section 5(d) of the Existing Warrant is amended
to reduce the minimum price set forth therein to $0.4545 per share and (3) Upon
any decrease in the Warrant Price, the number of Warrant Shares shall be
increased to the number of shares determined by multiplying the Warrant Price
that was in effect immediately prior to such decrease by the number of Warrant
Shares issuable upon exercise of the Warrant prior to such decrease and dividing
the product by the Warrant Price resulting from the decrease.

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                7.4    Amendment to Existing Debenture. That certain 10% Senior
Secured Convertible Debenture issued by the Company to the Purchaser on December
7, 2007 is hereby amended to permit the Purchaser to convert such debenture at
any time following the execution of this Agreement.

                7.5    Amendment to Security Agreement. The definition of
“Secured Obligations”, contained in that certain Security Agreement between the
Purchaser and the Company, dated December 7, 2007, is hereby amended to include
the Debentures.

                7.6    Short Sales. The Purchaser covenants that neither it nor
any affiliate acting on its behalf or pursuant to any understanding with it will
pledge, hypothecate, loan or execute any “short sales,” as such term is defined
in Rule 200 of Regulation SHO under the Exchange Act, or other hedging
transactions with broker-dealers or other financial institutions that may, in
turn, engage in “short sales” of the Common Stock, during the twelve (12) month
period prior to conversion of the Debenture.

                7.7    Fees and Expenses. Except as otherwise set forth in this
Agreement and the other Transaction Documents, each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement; provided
that the Company shall pay all actual, reasonable and necessary attorneys’ fees
and expenses (including disbursements and out-of-pocket expenses) incurred by
the Purchaser in connection with (i) the preparation, negotiation, execution and
delivery of this Agreement and the other Transaction Documents and the
transactions contemplated thereunder, which payment shall not exceed $20,000 and
shall be made at the Closing, and (ii) any amendments, modifications or waivers
of this Agreement or any of the other Transaction Documents. The Company shall
also pay all reasonable fees and expenses incurred by the Purchaser in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys’
fees and expenses.

                7.8    Specific Performance; Consent to Jurisdiction; Venue.

                (a)     The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.

                (b)     The parties agree that venue for any dispute arising
under this Agreement will lie exclusively in the state or federal courts located
in California, and the parties irrevocably waive any right to raise forum non
conveniens or any other argument that California is not the proper venue. The
parties irrevocably consent to personal jurisdiction in the state and federal
courts of the State of California. The Company and the Purchaser consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7.8 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchaser hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the other Transaction Documents, shall be entitled to reimbursement
for reasonable legal fees from the non-prevailing party. The parties hereby
waive all rights to a trial by jury.

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                7.9    Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
the Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchaser. Any amendment or waiver
effected in accordance with this Section 7.4 shall be binding upon the Purchaser
(and its permitted assigns) and the Company.

                7.10    Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the third business
day following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:

If to the Company: Electro Energy, Inc.
30 Shelter Rock Road
Danbury, Connecticut 06810
Attention: President
Tel. No.: (203) 797-2699
Fax No.: (203) 797-2697   with copies (which copies
shall not constitute notice
to the Company) to:

Lev & Berlin, P.C.
200 Connecticut Avenue, 5th Floor
Norwalk, Connecticut 06854-1940
Attention: Duane L. Berlin, Esq.
Tel. No.: (203) 838-8500
Fax No.: (203) 854-1652

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If to the Purchaser: The Quercus Trust
1835 Newport BlvdA109-PMB 467
Costa Mesa, California 92627
Attn: Mr. David Gelbaum, Trustee   with copies (which copies
shall not constitute notice
to the Purchaser) to:

Greenberg Glusker
1900 Avenue of ths Stars
21st Floor
Los Angeles, California 90067

        Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto pursuant
to the provisions of this Section 7.10.

                7.11    Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.

                7.12    Headings. The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.

                7.13    Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to Section 5.1 hereof, the Purchaser may assign the Securities and its
rights under this Agreement and the other Transaction Documents and any other
rights hereto and thereto without the consent of the Company.

                7.14    No Third Party Beneficiaries. Except as contemplated by
Article VI hereof, this Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other person.

                7.15    Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without giving effect to any of the conflicts of law principles which would
result in the application of the substantive law of another jurisdiction. This
Agreement shall not be interpreted or construed with any presumption against the
party causing this Agreement to be drafted.

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                7.16    Survival. The representations and warranties of the
Company and the Purchaser shall survive the execution and delivery hereof and
the Closing hereunder.

                7.17    Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart.

                7.18    Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser
without the consent of the Purchaser, which consent shall not be unreasonably
withheld or delayed, or unless and until such disclosure is required by law,
rule or applicable regulation, including without limitation any disclosure
pursuant to the Registration Statement, and then only to the extent of such
requirement.

                7.19    Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.

                7.20    Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, the Company and the
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the other
Transaction Documents.

{Signature Page Follows}

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        IN WITNESS WHEREOF, the parties hereto have caused this Debenture and
Warrant Purchase Agreement to be duly executed by their respective authorized
officers as of the date first above written.

  ELECTRO ENERGY, INC.

  By: /s/ Timothy E. Coyne

  Timothy E. Coyne
Chief Financial Officer

  THE QUERCUS TRUST

  By: /s/ David Gelbaum

  David Gelbaum
Trustee

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EXHIBIT A

(The Debenture)

THIS DEBENTURE AND ANY SHARES ACQUIRED UPON THE CONVERSION OF THIS DEBENTURE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR
OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION
PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR WITHOUT DELIVERING
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.

US$625,000 August __, 2008

ELECTRO ENERGY, INC.

10% SENIOR SECURED CONVERTIBLE DEBENTURE

        THIS DEBENTURE of Electro Energy, Inc., a Florida corporation (the
“Company”), in the aggregate principal amount of Six Hundred Twenty-Five
Thousand Dollars (US$625,000).

        FOR VALUE RECEIVED, the Company promises to pay to The Quercus Trust, or
its registered assigns (the “Holder”), the principal sum of Six Hundred
Twenty-Five Thousand Dollars (US$625,000), on or prior to August __, 2013 (the
“Maturity Date”), and to pay interest to the Holder on the principal sum at the
rate of ten percent (10.0%) per annum. Interest shall accrue daily commencing on
the Original Issuance Date (as defined in Section 1 below) in the form of cash
or freely-trading shares of Common Stock of the Company, as determined in the
Company’s sole discretion, until payment in full of the principal sum, together
with all accrued and unpaid interest, has been made or duly provided for. In the
event that the Company elects to have the interest on this Debenture payable in
Common Stock, the shares of Common Stock shall be valued at the VWAP (as defined
below) for the ten (10) days immediately preceding the date that such interest
is due. Payment of accrued but unpaid interest shall be payable quarterly
commencing December 31, 2008, and shall be payable within thirty (30) days of
such interest being due and payable. Interest due and payable hereunder shall be
paid to the person in whose name this Debenture (or one or more successor
Debentures) is registered on the records of the Company regarding registration
and transfers of the Debenture (the “Debenture Register”).

        This Debenture is subject to the following additional provisions:

        1.    Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings given such terms in the Debenture and Warrant
Purchase Agreement, dated as of even date herewith, pursuant to which the
Debenture was originally issued (the “Purchase Agreement”). As used in this
Agreement, the following terms shall have the following meanings:

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        “Common Stock” shall mean the shares of Common Stock of the Company (as
adjusted for any reverse splits, forward splits, combination, reclassification
or stock dividend from the date hereof).

        “Common Stock Equivalents” shall mean any stock options, warrants,
convertible securities, debt instruments or other rights to purchase or acquire
shares of Common Stock.

        “Conversion Date” shall mean the date upon which the conversion of this
Debenture shall be effective.

        “Conversion Ratio” means, at any time, a fraction, the numerator of
which is the then outstanding principal amount represented by the Debenture plus
accrued but unpaid interest thereon, and the denominator of which is the
applicable conversion price at such time.

        “Market Price” shall mean 70% of the VWAP of the Common Stock for the
ten (10) business day period prior to the Conversion Date

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

        “Original Issuance Date” shall mean the date of the first issuance of
this Debenture regardless of the number of transfers hereof.

        “Principal Trading Market” shall mean the Nasdaq Capital Market or other
national securities exchange, The National Association of Securities Dealers
Inc.‘s Over-The-Counter Bulletin Board, the Pink Sheets, or another national
quotation system.

        “Subsequent Financing” shall mean the completion by the Company of one
or a series of related debt or equity financing transactions, exclusive of a
debt financing for maximum gross proceeds of not more than $25,000,000, by a
factor, commercial bank or similar financial institution. Notwithstanding the
foregoing, the issuance to KIT Financial, Inc. or its affiliates of convertible
debentures in an original aggregate principal amount of not more than $500,000,
having a conversion price of $1.00 per share, together with warrants to purchase
not more than an aggregate of 1,250,000 shares of the Company’s common stock at
an exercise price of $1.00 per share, each having the same terms and conditions
as are set forth herein and in the New Debenture and the New Warrant, shall not
be considered a Subsequent Financing as defined herein, in the Original
Debenture as defined in the Purchase Agreement or in any other agreement,
document or instrument between the Company and the Purchaser.

        “Transaction Documents” shall mean (i) this Debenture, (ii) the Purchase
Agreement and Registration Rights Agreement between the Holder and the Company
of even date herewith and (iii) the Warrant to purchase Common Stock issued by
the Company to the Holder.

        “VWAP” means the daily volume weighted average price of the Common Stock
on the Principal Trading Market as reported by Bloomberg Financial L.P. (based
on a trading day from 9:30 a.m., Eastern time, to 4:00 p.m., Eastern time) using
the VWAP function on the date in question.

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        2.    Denominations of Debenture. The Debenture is exchangeable for an
equal aggregate principal amount of the Debenture of different authorized
denominations, as requested by the Holder surrendering the same, but shall not
be issuable in denominations of less than integral multiplies of Ten Thousand
Dollars (US$10,000). No service charge to the Holder will be made for such
registration of transfer or exchange.

        3.    Events of Default and Remedies.

                (a)     “Event of Default,” when used herein, means any one of
the following events (whatever the reason and whether any 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 the
principal of or interest on this Debenture as and when the same shall become due
and payable lasting more than three (3) Business Days;

                             (ii)     the Company shall fail to observe or
perform any other covenant, agreement or warranty contained in, or otherwise
commit any breach of, this Debenture, and such failure or breach shall not have
been remedied within thirty (30) Business Days of its receipt of notice of such
failure or breach;

                             (iii)    the occurrence of any event or breach or
default by the Company under the other Transaction Documents and, if there is a
cure period, such failure or breach shall not have been remedied within the cure
period provided for therein;

                             (iv)     the Company or any of its subsidiaries
shall commence a voluntary case under the United States Bankruptcy Code as now
or hereafter in effect or any successor thereto (the “Bankruptcy Code”); or an
involuntary case is commenced against the Company under the Bankruptcy Code and
the petition is not controverted within thirty (30) days, or is not dismissed
within sixty (60) days, after commencement of the case; or a “custodian” (as
defined in the Bankruptcy Code) is appointed for, or takes charge of, all or any
substantial part of the property of the Company or the Company commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced against the Company any such proceeding which remains undismissed
for a period of sixty (60) days; or the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company suffers any appointment of any custodian
or the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of thirty (30) days; or the Company makes
a general assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state in writing that it is unable to pay its debts generally as
they become due; or the Company shall call a meeting of its creditors with a
view to arranging a composition or adjustment of its debts; or the Company shall
by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action is taken
by the Company for the purpose of effecting any of the foregoing;

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                             (v)       the Company shall default in any of its
obligations under any mortgage, indenture or instrument under which there may be
issued, or by which there may be secured or evidenced, any indebtedness of the
Company in an amount exceeding One Hundred Thousand Dollars ($100,000.00),
whether such indebtedness now exists or shall hereafter be created and such
default shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and payable;

                             (vi)     the Company shall issue a press release,
or otherwise make publicly known, that it is not honoring a properly executed
and duly delivered Notice of Conversion complying with the terms of any of the
Transaction Documents, for any reason whatsoever; and

                             (vii)    The Company fails to issue shares of
Common Stock to the Holder or to cause its transfer agent to issue shares of
Common Stock upon exercise by the Holder of the conversion rights of the Holder
in accordance with the terms of this Debenture, fails to transfer or to cause
its transfer agent to transfer any certificate for shares of Common Stock issued
to the Holder upon conversion of this Debenture and when required by this
Debenture or the other Transaction Documents, and such transfer is otherwise
lawful, or fails to remove any restrictive legend or to cause its transfer agent
to transfer on any certificate or any shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when required by this Debenture
or any of the Transaction Documents and such legend removal is otherwise lawful,
and any such failure shall continue uncured for ten (10) business days after
written notice of such failure.

                (b)     (i) If (x) any Event of Default (other then under
Section 3(a)(iv) above) occurs, and continues beyond a cure period, if any, then
the Holder may, by written notice to the Company, accelerate all of the payments
due under this Debenture by declaring all amounts so due under this Debenture,
or (y) any Event of Default occurs under Section 3(a)(iv), and continues beyond
a cure period, if any, then all of the payments due under this Debenture shall
automatically accelerate without any action on the part of the Holder,
whereupon, in any such case, the same shall become immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are waived by the Company, notwithstanding anything contained herein to the
contrary, and the Holder may immediately and without expiration of any
additional grace period enforce any and all of its rights and remedies hereunder
and all other remedies available to it under applicable law. Such declaration
may be rescinded and annulled by the Holder at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon. This shall include, but not be
limited to the right to temporary, preliminary and permanent injunctive relief
without the requirement of posting any bond or undertaking. During the period
commencing upon delivery of a notice of an Event of Default and terminating upon
the cure of such Event of Default, the Company shall not issue an equity or debt
securities or any Common Stock equivalents, including any options, warrants, or
convertible debt or convertible equity.

                             (ii)     The Holder may thereupon proceed to
protect and enforce its rights either by suit in equity, by action at law and/or
by exercise of its rights under the Security Agreement and/or by other
appropriate proceedings whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in this Debenture or in
aid of the exercise of any power granted in this Debenture, and proceed to
enforce the payment of the Debenture held by it, and to enforce any other legal
or equitable right of such Holder.

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                             (iii)    Except as expressly provided for herein,
the Company specifically (i) waives all rights it may have (A) to notice of
nonpayment, notice of default, demand, presentment, protest and notice of
protest with respect to any of the obligations hereunder or the shares of Common
Stock and (B) notice of acceptance hereof or of any other action taken in
reliance hereon, notice and opportunity to be heard before the exercise by the
Holder of the remedies of self-help, set-off, or other summary procedures and
all other demands and notices of any type or description except for cure
periods, if any; and (ii) releases the Holder, its officers, directors, agents,
employees and attorneys from all claims for loss or damage caused by any act or
failure to act on the part of the Holder, its officers, attorneys, agents,
directors and employees except for gross negligence or willful misconduct.

        4.    Conversion.

                (a)     The Holder is entitled, at its option, to convert and
sell at any time and from time to time subject to restrictions set forth below,
until payment in full of this Debenture, the principal amount of this Debenture,
plus accrued and unpaid interest hereunder, in whole or in part, into shares of
Common Stock. The conversion price shall be $1.00 per share (the “Conversion
Price”).

                (b)     In the event that this Debenture has not been paid in
full or converted in full, prior to the closing of a Subsequent Financing, then,
at least ten (10) days prior to the closing of a Subsequent Financing, the
Company shall deliver a notice to the Holder (a “Subsequent Financing Notice”).
The Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing and the Company shall attach thereto the
subscription documents and other closing documents in connection with the
Subsequent Financing. If the Holder desires to exchange all or a portion of the
outstanding principal amount of this Debenture, together with the interest
accrued and unpaid thereon, into the securities offered in the Subsequent
Financing, then the Holder shall complete the subscription documents and other
closing documents in connection with the Subsequent Financing and return them to
the Maker, at least three business days prior to the closing of the Subsequent
Financing.

                (c)     No fraction of shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share. To convert this Debenture, on the Conversion
Date, the Holder hereof shall deliver written notice thereof, substantially in
the form of Exhibit A to this Debenture, with appropriate insertions (the
“Conversion Notice”), to the Company at its address as set forth herein.

                (d)     Subject to Section 1.1(e) of the Purchase Agreement
(“Underlying Shares”), the Company shall reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of this Debenture, such number of shares of Common
Stock as shall from time to time be sufficient to effect such conversion, based
upon the Conversion Price.

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                (e)     The issuance of a certificate or certificates for shares
of Common Stock upon conversion of the Debenture shall be made without charge to
the Holder for any documentary stamp or similar taxes that may be payable in
respect of the issuance or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder 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.

                (f)     The portion of this Debenture converted into Common
Stock shall be canceled upon conversion.

                (g)     Each Notice of Conversion shall be given by facsimile to
the Company no later than 4:00 p.m., Eastern time, on any Business Day. Any such
notice shall be deemed given and effective upon the transmission of such
facsimile at the facsimile telephone number specified in the Purchase Agreement
(with printed confirmation of transmission). In the event that the Company
receives the Notice of Conversion after 4:00 p.m., Eastern time, any such notice
shall be deemed to have been given on the next Business Day.

                (h)     When the Holder elects to convert a part of the
Debenture, then the Company shall reissue a new Debenture in the same form as
this Debenture to reflect the new principal amount.

                (i)     If, at the time of issuance of shares of Common Stock
upon conversion of this Debenture, no registration statement is in effect with
respect to such shares under applicable provisions of the Securities Act, the
Company may, at its election, require that (i) the Holder provide written
reconfirmation of the Holder’s investment intent to the Company, and (ii) any
stock certificate evidencing Common Stock shall bear legends reading
substantially as follows:

  “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT.”  

                (j)       The conversion price shall be subject to adjustment as
set forth below in this Section 4(j).

                             (i)       Adjustment for Stock Splits and
Combinations. If the Company shall at any time, or from time to time after the
date hereof (the “Original Issue Date”), effect a subdivision of the outstanding
Common Stock, the Conversion Price in effect immediately prior thereto shall be
proportionately decreased, and conversely, if the Company shall at any time or
from time to time after the Original Issue Date combine the outstanding shares
of Common Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 4(j) shall become effective at the close of business on the date the
subdivision or combination becomes effective.

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                             (ii)      Adjustment for Certain Dividends and
Distributions. In the event the Company at any time, or from time to time after
the Original Issue Date, shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Conversion Price then in effect shall be decreased as of the
time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date, by multiplying the Conversion
Price then in effect by a fraction:

                      (A)   the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date; and

                      (B)   the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter, the Conversion Price shall be
adjusted pursuant to this Section 4(j)(ii)(B) as of the time of actual payment
of such dividends or distributions.

                             (iii)     Adjustments for Other Dividends and
Distributions. In the event the Company at any time or from time to time after
the Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of this Debenture shall receive upon conversion thereof in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Company that they would have received had the Debentures been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the Conversion Date,
retained such securities receivable by them as aforesaid during such period
giving application to all adjustments called for during such period under this
Section 4(j)(iii).

                (k)   Notwithstanding the foregoing, the Purchaser may not
convert this Debenture or exercise the Warrant to the extent that the aggregate
number of shares issuable upon such conversion or exercise, together with (i)
any penalty shares issued pursuant to the Registration Rights Agreement between
the Company and the original Holder executed in connection with this
transaction, and the Registration Rights Agreement dated July 23, 2008, and
(ii) shares of Common Stock that may have been issued upon the exercise of the
warrant issued to the Purchaser pursuant to that certain Warrant Purchase
Agreement dated July 23, 2008 , will exceed 19.9% of the total number of shares
of Common Stock outstanding as of July 23, 2008, or will otherwise result in a
Change in Control (as defined in Section 9 below), until the Company’s
stockholders have approved the transactions described herein in accordance with
the rules of the Company’s Principal Trading Market. The Company shall use its
best effort to obtain stockholder approval as promptly as possible after the
Original Issuance Date, but in no event later than October 31, 2008. Failure to
obtain such stockholder approval within such time frame shall constitute an
Event of Default hereunder.

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        5.      Registration Rights. The Company is obligated to register the
resale of the shares of Common Stock issuable upon conversion of this Debenture
pursuant to the terms and conditions contained in the Registration Rights
Agreement, as of even date herewith, between the Company and the Holder (the
“Registration Rights Agreement”).

        6.      Ranking; Security.

                (a)     Subject to the provisions of Section 6(b) herein, this
Debenture shall rank senior to any other debt of the Company with respect to any
payment of amounts due under this Debenture upon the liquidation, dissolution or
otherwise of the Company. Except as set forth herein, so long as there are any
obligations outstanding under this Debenture, no indebtedness of the Company is
or shall become senior to this Debenture in right of payment, whether with
respect of interest, damages or upon liquidation or dissolution or otherwise.
The Company will not, directly or indirectly, enter into, create, incur or
assume any indebtedness of any kind, on or with respect to any of its property
or assets now owned or hereafter acquired or any interest therein or any income
or profits therefrom, that is senior in any respect to the Company’s obligations
under this Debenture. This Debenture shall be secured pursuant to the terms of
the Security Agreement, dated December 7, 2007, among the Company, the Purchaser
and the collateral agent named therein, and shall be evidenced by a first
priority lien on all of the assets of the Company.

                (b)     Notwithstanding the foregoing, this Debenture shall rank
pari passu as to payment and security with that certain $500,000 10% Senior
Secured Convertible Debenture to be issued to KIT Financial, Inc., or any of its
affiliates (the “KIT Debenture”).

        7.    Absolute Payment Obligation. Except as expressly provided herein,
no provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company.

        8.    Prepayment and Subsequent Financing Conversion.

                (a)    Optional Prepayment. Commencing fourteen (14) months
after the date hereof, the Company shall have the right, by providing thirty
(30) days prior written notice to the Holder, to prepay this Debenture without
premium or penalty. A condition precedent to prepayment of this Debenture is
that the Company is listed on a Principal Trading Market and the registration
statement contemplated by the Registration Rights Agreement shall be declared
effective by the U.S. Securities and Exchange Commission or the shares of Common
Stock issuable upon conversion of the Debenture may be sold pursuant to Rule 144
under the Securities Act without volume limitations.

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                (b)    Subsequent Financing. In the event that the Company shall
complete a Subsequent Financing prior to the Maturity Date, and the Holder has
not converted this Debenture into the securities issued in a Subsequent
Financing or into Common Stock, at the option of such Holder, the principal
amount of this Debenture, plus accrued and unpaid interest hereunder, shall
become due and payable on the closing of the Subsequent Financing.

        9.    Change in Control. In the event of a Change in Control (as defined
below) during the term of this Debenture, the Holder may elect to (i) have this
Debenture redeemed by the Company at 110% of the principal balance then
outstanding under this Debenture, together with accrued interest, on or within
twenty (20) days following the Change in Control (and the Company shall satisfy
the redemption request in cash or freely tradable shares of Common Stock, in the
Company’s sole discretion) or (ii) convert the principal amount of this
Debenture, plus accrued and unpaid interest hereunder, into freely tradable
shares of Common Stock on or within such twenty (20) day period. Such Common
Stock shall be valued at the relevant VWAP as of the redemption date or
conversion date, as the case may be. A “Change in Control” shall be deemed to
have occurred when (a) a third person, including a “group,” as such term is
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, other than
the Purchaser or its affiliates, becomes (other than as a result of a purchase
from the Company) the beneficial owner of shares of the Company having 50% or
more of the total number of votes that may be cast for the election of directors
of the Company and such beneficial owner continues for five consecutive days, or
(b) as a result of, or in connection with, any cash tender or exchange offer,
merger or other business combination, sale of assets or contested election or
any combination of the foregoing transactions, the persons who were directors of
the Company before such transaction shall cease for any reason to constitute at
least a majority of the Board of Directors of the Company or any successor;
provided, however, that no Change in Control shall occur pursuant to or as a
result of the transactions described in the Purchase Agreement.

        10.    No Rights of Stockholders. Except as otherwise provided herein or
in the Purchase Agreement, this Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Company, including without limitation, the
right to vote on or consent to any action, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to the extent
converted into shares of Common Stock in accordance with the terms hereof.

        11.    Loss, Theft, Mutilation or Destruction. 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 an affidavit of such loss, theft or
destruction of such Debenture, and, if requested by the Company, an agreement to
indemnify the Company in form reasonably acceptable to the Company.

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        12.    Governing Law; Jurisdiction; Waiver of Jury Trial.

                (a)     This Debenture shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware without
giving effect to the principles of conflicts of law thereof. Any action to
enforce the terms of this Debenture, the Purchase Agreement or any other
Transaction Document shall be exclusively brought in the state and/or federal
courts in the State of Delaware. Service of process in any action by the Holder
to enforce the terms of this Debenture may be made by serving a copy of the
summons and complaint, in addition to any other relevant documents, by
commercial overnight courier to the Company at its address set forth in the
Purchase Agreement. The Company and the Holder (by its acceptance hereof) hereby
consent to the jurisdiction of the state and federal courts located in the State
of Delaware.

                (b)     THE COMPANY AND THE HOLDER (BY ITS ACCEPTANCE HEREOF)
HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEBENTURE OR THE TRANSACTIONS
CONTEMPLATED BY THIS DEBENTURE. THE COMPANY AND THE HOLDER (BY ITS ACCEPTANCE
HEREOF) HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO DELIVER OR ACCEPT, AS THE CASE MAY BE,
THIS DEBENTURE BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION.

        13.    Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed duly given only if delivered
to the party personally or sent to the party by facsimile upon electronic
confirmation receipt (promptly followed by a hard-copy delivered in accordance
with this Section 13) or three days after being mailed by registered or
certified mail (return receipt requested), with postage and registration or
certification fees thereon prepaid, or if sent by nationally recognized
overnight courier, one day after being mailed, addressed to the party at its
address as set forth in Section 7.5 of the Purchase Agreement or such other
address as may be designated hereafter by notice given pursuant to the terms of
this Section 13.

        14.    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
in any other occasion. Any waiver must be in writing.

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

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        16.    Payment Dates. 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 following Business Day.

        17.    Transfer; Assignment. This Debenture may not be transferred or
assigned, in whole or in part, at any time, except in compliance by the
transferor and the transferee with applicable federal and state securities laws.

        18.    Fees of Enforcement. In the event either party commences legal
action to enforce its rights under this Debenture, the non-prevailing party
shall pay all reasonable costs and expenses (including but not limited to
reasonable attorney’s fees, accountant’s fees, appraiser’s fees and
investigative fees) incurred in enforcing such rights.

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

  ELECTRO ENERGY, INC.

  By: SAMPLE

{Exhibit A to Debenture is Omitted Intentionally}

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EXHIBIT B
(The Warrant)

ELECTRO ENERGY, INC.

Warrant No. ________

WARRANT TO PURCHASE COMMON STOCK

VOID AFTER 5:00 P.M., EASTERN TIME,
ON THE EXPIRATION DATE

August __, 2008

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE
TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR WITHOUT DELIVERING AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

                FOR VALUE RECEIVED, Electro Energy, Inc., a Florida corporation
(the “Company”), hereby agrees to sell upon the terms and on the conditions
hereinafter set forth, at any time commencing on the date hereof but no later
than 5:00 p.m., Eastern Time, on August __, 2011 (the “Expiration Date”), to The
Quercus Trust, or its registered assigns (the “Holder”), under the terms as
hereinafter set forth, up to One Million Five Hundred Sixty-Two Thousand Five
Hundred (1,562,500) fully-paid and non-assessable shares of the Company’s Common
Stock, par value $.001 per share (the “Common Stock”), at a purchase price per
share of $1.00 (the “Warrant Price”), pursuant to the terms and conditions set
forth in this warrant (this “Warrant”). The number of shares of Common Stock
issued upon exercise of this Warrant (“Warrant Shares”) and the Warrant Price
are subject to adjustment in certain events as hereinafter set forth.

                This Warrant is issued pursuant to that certain Debenture and
Warrant Purchase Agreement, dated as of even date herewith (the “Purchase
Agreement”), between the Company and the Holder. Capitalized terms not otherwise
defined herein are defined as set forth in the Purchase Agreement.

  1.   Exercise of Warrant.

                (a)     The Holder may exercise this Warrant according to the
terms and conditions set forth herein by delivering to the Company, at the
address set forth in Section 10 prior to 5:00 p.m., Eastern Time, on the
Expiration Date (i) this Warrant, (ii) the Subscription Form attached hereto as
Exhibit A (the “Subscription Form”) (having then been duly executed by the
Holder) and unless Holder elects to make a “Cashless Exercise” (as defined
herein) pursuant to Section 1(b) herein, (iii) cash, a certified check or a bank
draft in payment of the purchase price, in lawful money of the United States of
America, for the number of Warrant Shares specified in the Subscription Form.

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                (b)     If the Holder elects to make a “Cashless Exercise” the
Holder shall receive shares of Common Stock on a net basis such that, without
the payment of any funds, the Holder shall surrender this Warrant in exchange
for the number of shares of Common Stock equal to the product of (x) the number
of shares of Common Stock as to which this Warrant is being exercised,
multiplied by (y) a fraction, the numerator of which is the aggregate Fair
Market Value (as defined herein) price of such Common Stock less the aggregate
then applicable Warrant Price, and the denominator of which is such aggregate
Fair Market Value price. “Fair Market Value” means the daily volume weighted
average price (“VWAP”) of the Common Stock on the Principal Trading Market for
the ten (10) trading days prior to the date of exercise of this warrant as
reported by Bloomberg Financial L.P. (based on a trading day from 9:30 a.m.,
Eastern time, to 4:00 p.m., Eastern time.

                (c)     This Warrant may be exercised in whole or in part so
long as any exercise in part hereof would not involve the issuance of fractional
Warrant Shares. If exercised in part, the Company shall deliver to the Holder a
new Warrant, identical in form to this Warrant, in the name of the Holder,
evidencing the right to purchase the number of Warrant Shares as to which this
Warrant has not been exercised, which new Warrant shall be signed by the Chief
Executive Officer or President of the Company. The term Warrant as used herein
shall include any subsequent Warrant issued as provided herein.

                (d)     No fractional Warrant Shares or scrip representing
fractional Warrant Shares shall be issued upon the exercise of this Warrant, but
the number of shares issuable shall be rounded to the nearest whole share

                (e)     In the event of any exercise of the rights represented
by this Warrant, a certificate or certificates for Warrant Shares so purchased,
registered in the name of the Holder on the stock transfer books of the Company,
shall be delivered to the Holder within a reasonable time after such rights
shall have been so exercised. The person or entity in whose name any certificate
for Warrant Shares is issued upon exercise of the rights represented by this
Warrant shall for all purposes be deemed to have become the holder of record of
such Warrant Shares immediately prior to the close of business on the date on
which the Warrant was surrendered and payment of the Warrant Price and any
applicable taxes was made, irrespective of the date of delivery of such
certificate, except that, if the date of such surrender and payment is a date
when the stock transfer books of the Company are closed, such person shall be
deemed to have become the holder of such shares at the opening of business on
the next succeeding date on which the Company’s stock transfer books are open.
Except as provided in Section 4 hereof, the Company shall pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of Warrant Shares on exercise of this Warrant.

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                (f)     Notwithstanding the foregoing, the Holder may not
convert this Warrant to the extent that the aggregate number of shares issuable
upon such exercise or conversion when combined with (i) any penalty shares
issued pursuant to the Registration Rights Agreement between the Company and the
original Holder of even date herewith, and (ii) shares of Common Stock that may
have been issued upon the exercise of that certain warrant issued to the Holder
on July 23, 2008, will exceed 19.9% of the total number of shares of Common
Stock outstanding as of July 23, 2008, until the Company’s stockholders have
approved the transactions described herein in accordance with the rules of the
Company’s Principal Trading Market. The Company shall use its best efforts to
obtain stockholder approval as promptly as possible after the issuance date of
this Warrant, but in no event later than October 31, 2008.

        2.    Disposition of Warrant Shares and Warrant.

                (a)     The Holder hereby acknowledges that: (i) this Warrant
and any Warrant Shares purchased pursuant hereto are not being registered (A)
under the Securities Act of 1933 (the “Securities Act”) on the ground that the
issuance of this Warrant is exempt from registration under Section 4(2) of the
Securities Act as not involving any public offering, or (B) under any applicable
state securities law because the issuance of this Warrant does not involve any
public offering; and (ii) that the Company’s reliance on the registration
exemption under Section 4(2) of the Securities Act and under applicable state
securities laws is predicated in part on the representations hereby made to the
Company by the Holder. The Holder represents and warrants that it is acquiring
this Warrant and will acquire Warrant Shares for investment for its own account,
with no present intention of dividing its participation with others or reselling
or otherwise distributing this Warrant or Warrant Shares.

                (b)     The Holder hereby agrees that it will not sell,
transfer, pledge or otherwise dispose of (collectively, “Transfer”) all or any
part of this Warrant and/or Warrant Shares unless and until it shall have first
have given notice to the Company describing such Transfer and furnished to the
Company (i) unless a registration statement is in effect with respect to the
Warrant and/or the Warrant Shares, or unless the Warrant and/or the Warrant
Shares are being sold pursuant to Rule 144 promulgated under the Securities Act,
a statement from the transferee, whereby the transferee represents and warrants
that it is acquiring this Warrant and will acquire Warrant Shares, as
applicable, for investment for its own account, with no present intention of
dividing its participation with others or reselling or otherwise distributing
this Warrant or Warrant Shares, as applicable, and either (ii) an opinion,
reasonably satisfactory to counsel for the Company, of counsel (skilled in
securities matters, selected by the Holder and reasonably satisfactory to the
Company) to the effect that the proposed Transfer may be made without
registration under the Securities Act and without registration or qualification
under any state law, or (iii) an interpretative letter from the U.S. Securities
and Exchange Commission to the effect that no enforcement action will be
recommended if the proposed sale or transfer is made without registration under
the Securities Act.

                (c)     If, at the time of issuance of Warrant Shares, no
registration statement is in effect with respect to such shares under applicable
provisions of the Securities Act, the Company may, at its election, require that
(i) the Holder provide written reconfirmation of the Holder’s investment intent
to the Company, and (ii) any stock certificate evidencing Warrant Shares shall
bear legends reading substantially as follows:

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  “THE SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY
THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE WARRANT
PURSUANT TO WHICH THESE SHARES WERE PURCHASED FROM THE COMPANY. COPIES OF SUCH
RESTRICTIONS ARE ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. NO TRANSFER OF
SUCH SHARES OR OF THIS CERTIFICATE (OR OF ANY SHARES OR OTHER SECURITIES (OR
CERTIFICATES THEREFOR) ISSUED IN EXCHANGE FOR OR IN RESPECT OF SUCH SHARES)
SHALL BE EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS SET FORTH IN THE
WARRANT HAVE BEEN COMPLIED WITH.”  

  “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT.”  

In addition, so long as the foregoing legend may remain on any stock certificate
evidencing Warrant Shares, the Company may maintain appropriate “stop transfer”
orders with respect to such certificates and the shares represented thereby on
its books and records and with those to whom it may delegate registrar and
transfer functions.

The Company shall remove such legend upon request of the Holder at such time as
the Holder is eligible to transfer the Warrant Shares under Rule 144.

        3.    Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance upon the exercise of this Warrant such
number of shares of the Common Stock as shall be required for issuance upon
exercise of this Warrant. The Company further agrees that all Warrant Shares
will be duly authorized and will, upon issuance and payment of the exercise
price therefor, be validly issued, fully paid and non-assessable, free from all
taxes, liens, charges and encumbrances with respect to the issuance thereof,
other than taxes, if any, in respect of any transfer occurring contemporaneously
with such issuance and other than transfer restrictions imposed by federal and
state securities laws. Upon the issuance of this Warrant, the Company shall have
sufficient authorized shares of Common Stock to exercise the portion permitted
to be exercised at such time.

        4.    Exchange, Transfer or Assignment of Warrant. Subject to Section 2,
this Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other Warrants of the Company (“Warrants”) of
different denominations, entitling the Holder or Holders thereof to purchase in
the aggregate the same number of Warrant Shares purchasable hereunder. Subject
to Section 2, upon surrender of this Warrant to the Company or at the office of
its stock transfer agent, if any, with the Assignment Form attached hereto as
Exhibit B (the “Assignment Form”) duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in the Assignment Form and this
Warrant shall promptly be canceled. Subject to Section 2, this Warrant may be
divided or combined with other Warrants that carry the same rights upon
presentation hereof at the office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof.

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        5.    Capital Adjustments. This Warrant is subject to the following
further provisions:

                (a)    Recapitalization, Reclassification and Succession. If any
recapitalization of the Company or reclassification of its Common Stock or any
merger or consolidation of the Company into or with a corporation or other
business entity, or the sale or transfer of all or substantially all of the
Company’s assets or of any successor corporation’s assets to any other
corporation or business entity (any such corporation or other business entity
being included within the meaning of the term “successor corporation”) shall be
effected, at any time while this Warrant remains outstanding and unexpired,
then, as a condition of such recapitalization, reclassification, merger,
consolidation, sale or transfer, lawful and adequate provision shall be made
whereby the Holder of this Warrant thereafter shall have the right to receive
upon the exercise hereof as provided in Section 1 and in lieu of the Warrant
Shares immediately theretofore issuable upon the exercise of this Warrant, such
shares of capital stock, securities or other property as may be issued or
payable with respect to or in exchange for the number of outstanding shares of
Common Stock equal to the number of Warrant Shares immediately theretofore
issuable upon the exercise of this Warrant had such recapitalization,
reclassification, merger, consolidation, sale or transfer not taken place, and
in each such case, the terms of this Warrant shall be applicable to the shares
of stock or other securities or property receivable upon the exercise of this
Warrant after such consummation.

                (b)    Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the number of Warrant Shares purchasable upon exercise
of this Warrant shall be proportionately adjusted.

                (c)    Stock Dividends and Distributions. If the Company at any
time while this Warrant is outstanding and unexpired shall issue or pay the
holders of its Common Stock, or take a record of the holders of its Common Stock
for the purpose of entitling them to receive, a dividend payable in, or other
distribution of, Common Stock, then the number of Warrant Shares purchasable
upon exercise of this Warrant shall be adjusted to the number of shares of
Common Stock that Holder would have owned immediately following such action had
this Warrant been exercised immediately prior thereto.

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                (d)    Exercise Price Adjustment. (i) If, prior to exercise of
this Warrant, the Company has issued, or shall be deemed to have issued,
Additional Shares of Common Stock (as defined below) for a consideration per
share of less than the Warrant Price, then the Warrant Price will be adjusted to
the consideration per share paid; provided, however, in no event shall the
Warrant Price be less than $0.4545 per share.

                        (ii)     As used herein, “Additional Shares” shall mean
all shares of Common Stock, or any stock options, warrants, convertible
securities or other rights to purchase or acquire shares of Common Stock, issued
or deemed to be issued by the Company after the date hereof; provided, however,
that issuances or deemed issuances (A) described in subsections (a), (b) or (c)
of this Section 5, (B) of Common Stock or options or warrants to purchase Common
Stock issued to officers, directors or employees of or consultants to the
Company pursuant to any compensation agreement, plan or arrangement, or the
issuance of Common Stock upon the exercise of any such options or warrants, (C)
of Common Stock upon the conversion of the Debenture issued pursuant to that
certain Debenture and Warrant Purchase Agreement dated December 7, 2007 between
the Company and The Quercus Trust, and (D) of Common Stock upon the exercise of
the Debenture issued pursuant to that certain Warrant Purchase Agreement dated
July 23, 2008 between the Company and The Quercus Trust, shall not be deemed
issuances of Additional Shares of Common Stock.

                (e)    Price Adjustments. Whenever the number of Warrant Shares
purchasable upon exercise of this Warrant is adjusted pursuant to Sections 5(a),
5(b) or 5(c), the then applicable Warrant Price shall be proportionately
adjusted.

                (f)    Adjustment to Number of Warrant Shares. Upon any decrease
in the Exercise Price pursuant to Section 5(d), the number of Warrant Shares
shall be increased to that number of shares determined by multiplying the
Warrant Price in effect immediately prior to such price decrease by the number
of Warrant Shares issuable upon exercise of the Warrant immediately prior to
such decrease and dividing the resulting product by the decreased Warrant Price.

                (g)    Certain Shares Excluded. The number of shares of Common
Stock outstanding at any given time for purposes of the adjustments set forth in
this Section 5 shall exclude any shares then directly or indirectly held in the
treasury of the Company.

                (h)    Deferral and Cumulation of De Minimis Adjustments. The
Company shall not be required to make any adjustment pursuant to this Section 5
if the amount of such adjustment would be less than one percent (1%) of the
Warrant Price in effect immediately before the event that would otherwise have
given rise to such adjustment. In such case, however, any adjustment that would
otherwise have been required to be made shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
or adjustments so carried forward, shall amount to not less than one percent
(1%) of the Warrant Price in effect immediately before the event giving rise to
such next subsequent adjustment. All calculations under this Section 5 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be, but in no event shall the Company be obligated to issue fractional
Warrant Shares or fractional portions of any securities upon the exercise of the
Warrant.

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                (i)    Duration of Adjustment. Following each computation or
readjustment as provided in this Section 5, the new adjusted Warrant Price and
number of Warrant Shares purchasable upon exercise of this Warrant shall remain
in effect until a further computation or readjustment thereof is required.

        6.    Notice to Holders.

                (a)    Notice of Record Date. In case:

                        (i)      the Company shall take a record of the holders
of its Common Stock (or other stock or securities at the time receivable upon
the exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right;

                        (ii)     of any capital reorganization of the Company,
any reclassification of the capital stock of the Company, any consolidation with
or merger of the Company into another corporation, or any conveyance of all or
substantially all of the assets of the Company to another corporation; or

                        (iii)    of any voluntary dissolution, liquidation or
winding-up of the Company;

then, and in each such case, the Company will mail or cause to be mailed to the
Holder hereof at the time outstanding a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities at the time
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution or winding-up. Such notice shall
be mailed at least ten (10) calendar days prior to the record date therein
specified, or if no record date shall have been specified therein, at least ten
(10) days prior to such specified date.

                (b)    Certificate of Adjustment. Whenever any adjustment shall
be made pursuant to Section 5 hereof, the Company shall promptly make available
and have on file for inspection a certificate signed by its Chairman, Chief
Executive Officer, President or a Vice President, setting forth in reasonable
detail the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Warrant Price and number
of Warrant Shares purchasable upon exercise of this Warrant after giving effect
to such adjustment.

        7.    Loss, Theft, Destruction or Mutilation. Upon receipt by the
Company of evidence satisfactory to it, in the exercise of its reasonable
discretion, of the ownership and the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company and, in the case of mutilation, upon
surrender and cancellation thereof, the Company will execute and deliver in lieu
thereof, without expense to the Holder, a new Warrant of like tenor dated the
date hereof.

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        8.    Warrant Holder Not a Stockholder. The Holder of this Warrant, as
such, shall not be entitled by reason of this Warrant to any rights whatsoever
as a stockholder of the Company, including but not limited to voting rights.

        9.    Registration Rights. The Warrant Shares will be accorded the
registration rights under the Securities Act set forth in that certain
Registration Rights Agreement of even date herewith between the Company and the
original Holder pursuant to which this Warrant was originally issued.

        10.    Notices. Any notice provided for in this Warrant must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested), or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:

  If to the Company:

  Electro Energy, Inc.
30 Shelter Rock Road
Danbury, Connecticut 06810
Attention: President

  With a copy to:

  Duane L. Berlin, Esq.
Lev & Berlin, P.C.
200 Connecticut Avenue, 5th Floor
Norwalk, Connecticut 06854

  If to the Holder:

  To the address of such Holder set forth on the books and records of the
Company.

                   or such other address or to the attention of such other
person as the recipient party shall have specified by prior written notice to
the sending party. Any notice under this Warrant will be deemed to have been
given (a) if personally delivered, upon such delivery, (b) if mailed, five days
after deposit in the U.S. mail, or (c) if sent by reputable overnight courier
service, one business day after such service acknowledges receipt of the notice.

        11.    Choice of Law.   THIS WARRANT IS ISSUED UNDER AND SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW RULES.

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        12.    Submission to Jurisdiction: Waiver of Jury Trial.   THE COMPANY
AND THE HOLDER (BY ITS ACCEPTANCE HEREOF) HEREBY SUBMITS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF DELAWARE, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AND AGREES THAT ALL CLAIMS
IN RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT. THE COMPANY AND THE HOLDER (BY ITS ACCEPTANCE HEREOF) ALSO AGREE NOT TO
BRING ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT IN ANY
OTHER COURT. THE COMPANY AND THE HOLDER (BY ITS ACCEPTANCE HEREOF) HEREBY WAIVES
ANY DEFENSE OF INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING
SO BROUGHT AND WAIVES ANY BOND, SURETY, OR OTHER SECURITY THAT MIGHT BE REQUIRED
OF ANY OTHER PARTY WITH RESPECT THERETO. THE COMPANY AND THE HOLDER (BY ITS
ACCEPTANCE HEREOF) HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS WARRANT
OR THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT. THE COMPANY AND THE HOLDER (BY
ITS ACCEPTANCE HEREOF) HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO DELIVER OR ACCEPT, AS
THE CASE MAY BE, THIS WARRANT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.

        IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
signed on its behalf, in its corporate name and by a duly authorized officer, as
of the date first written above.

  ELECTRO ENERGY, INC.

  By: SAMPLE

  Name:
Title:

{Exhibits A and B to the Form of Warrant are Omitted Intentionally}

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SCHEDULE 1.1(A): MILESTONES

MILESTONES

        The following are the milestones. No funds shall be required unless and
until the Company timely meets its milestones.

  MILESTONE #1

      •   Abide by weekly budget attached hereto in all material respects. No
expenditures shall be made for Colorado Springs except from revenues from such
operation, without the approval of the Investor. The Company shall immediately
provide all information, materials and access reasonably requested by the
Investor and/or its agents in order to confirm the foregoing.

      •   Complete and approve 2.2Ah cell specification and data sheet NLT 8/3.

      •   Complete and approve 2.2Ah cell process, operating and quality
specifications NLT 8/10.

      •   Implement 1000 cell per day input to assembly process to debug and
improve yield of equipment through formation NLT 8/10.

        • Quercus to acquire New Debenture(s) and Warrants for Six Hundred
Twenty-Five Thousand Dollars ($625,000) within two (2) calendar days of
completion, if timely completed, or upon the execution of definitive transaction
documents if completed prior thereto.

  MILESTONE #2

      •   Continue to abide by the above budget in all material respects and
immediately provide all information, materials and access reasonably requested
by the Investor and/or its agents in order to confirm such compliance.

      •   Achieve 2.2Ah cell UN certification NLT 8/31.

      •   Ship 300 sample cells to customers NLT 8/18.

      •   Book orders for 1000 cells NLT 8/31.

        • Quercus to acquire additional New Debenture(s) and Warrants for Six
Hundred Twenty-Five Thousand Dollars ($625,000) within two (2) calendar days of
timely completion.

        • Proof of completion of each milestone to be submitted to Mr. Lyle
Deitch.

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BUDGET

{Intentionally Omitted}

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SCHEDULE 2.1(A): CAPITALIZATION

{Intentionally Omitted}

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