Exhibit 10.35

 

DEBENTURE

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED
OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION
REQUIREMENTS THEREOF OR EXEMPTION THEREFROM.

 

$120,000.00

 

 

CYCLONE POWER TECHNOLIGES, INC.

 

CONVERTIBLE DEBENTURE DUE DECEMBER 17, 2016

 

Date of Issuance: December 17, 2013

 

FOR VALUE RECEIVED, CYCLONE POWER TECHNOLOGIES, INC., a corporation organized
and existing under the laws of the State of Florida (the "Company"), hereby
promises to pay to PEAK ONE OPPORTUNITY FUND, L.P., having its address at 333
South Hibiscus Drive, Miami Beach, FL 33139, or its assigns (the "Holder" and
together with the other holders of Debentures issued pursuant to the Securities
Purchase Agreement (as defined below), the "Holders"), the principal sum of One
Hundred Twenty Thousand and 00/100 Dollars ($120,000.00) (the “Principal
Amount”) on December 17, 2016 (the "Maturity Date") and to pay simple interest
on the principal sum outstanding from time to time in arrears (i) upon
conversion as provided herein or (ii) on the Maturity Date, at the rate of six
percent (6%) per annum (subject to adjustment pursuant to Section 10 hereof).
Interest shall commence to accrue on this Debenture on the first such business
day to occur after the date hereof and shall continue on a daily basis until
payment in full of the principal sum has been made or duly provided for or until
the full outstanding amount of this Debenture has been converted in accordance
with the provisions hereof. The Company has the option to redeem this Debenture
prior to the Maturity Date pursuant to Section 2(b). All unpaid principal and
interest due and payable on the Maturity Date shall be paid in the form of
Common Stock of the Company, par value $0.0001 per share ("Common Stock")
pursuant to Section 3. The Holder has the option to cause any outstanding
principal and interest on this Debenture to be converted into Common Stock at
any time prior to the Redemption Date (as defined below) or the Maturity Date
pursuant to Section 2(a).

 

 
 

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This Debenture is the Debenture referred to in the Securities Purchase Agreement
(the "Securities Purchase Agreement") dated December 16, 2013, between the
Company and the Holder. Capitalized terms used but not defined herein shall have
the meanings set forth in the Securities Purchase Agreement. This Debenture is
subject to the provisions of the Securities Purchase Agreement and further is
subject to the following additional provisions:

 

1.     This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act and other applicable state and foreign
securities laws. The Holder may transfer or assign this Debenture (or any part
thereof) without the prior consent of the Company, and the Company shall
cooperate with any such transfer. In the event of any proposed transfer of this
Debenture, the Company may require, prior to issuance of a new Debenture in the
name of such other Person, that it receive reasonable transfer documentation
including legal opinions that the issuance of the Debenture in such other name
does not and will not cause a violation of the Securities Act or any applicable
state or foreign securities laws. Prior to due presentment for transfer of this
Debenture to which the Company has consented, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly registered on
the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

 

2.     Conversion at Holder’s Option; Redemption at Company’s Option.

 

a.     The Holder is entitled to, at any time or from time to time, convert the
Conversion Amount into shares of Common Stock, at a conversion price for each
share of Common Stock (the “Conversion Price") equal to sixty five percent (65%)
of the lowest closing bid price per share (as reported by Bloomberg LP) of
Common Stock for the twenty (20) trading days immediately preceding the date of
conversion (subject to equitable adjustments resulting from any stock splits,
stock dividends, recapitalizations or similar events). The Company shall issue
irrevocable instructions to its transfer agent regarding such conversion.
Notwithstanding the foregoing, the Holder shall not be entitled to convert any
part of this Debenture as to which the Company has previously issued to the
Holder a Redemption Notice in accordance with Section 2(b). The Conversion Price
will be adjusted as provided in Section 6. For purposes of this Debenture, the
following terms have the meanings indicated below:

 

(i)     “Conversion Amount” shall mean the sum of (A) all or any portion of the
outstanding principal amount of this Debenture, as designated by the Holder upon
exercise of its right of conversion plus (B) all interest that has accrued on
the portion of the principal amount that has been designated for payment
pursuant to (A).

 

(ii)     “Market Price of the Common Stock” means (x) the closing bid price of
the Common Stock for the period indicated in the relevant provision hereof
(unless a different relevant period is specified in the relevant provision), as
reported by Bloomberg, LP or, if not so reported, as reported on the
over-the-counter market or (y) if the Common Stock is listed on a stock
exchange, the closing price on such exchange, as reported by Bloomberg LP.

 

(iii)     “Trading Day” shall mean any day on which the New York Stock Exchange
is open for business.

 

 
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Conversion shall be effectuated by delivering by facsimile or other delivery to
the Company of the completed form of conversion notice attached hereto as Annex
A, executed by the Holder of the Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion hereof. No fractional shares of
Common Stock 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. The date on which notice of conversion is given (the "Conversion
Date") shall be deemed to be the date on which the Company receives by fax or by
mail the conversion notice (“Notice of Conversion”), substantially in the form
annexed hereto as Annex A, duly executed, to the Company. Facsimile delivery of
the Notice of Conversion shall be accepted by the Company by email at (954)
788-6565 or email chris@cyclonepower.com. Certificates representing Common Stock
upon conversion must be delivered within two (2) business days from the date of
delivery of the Notice of Conversion. For the avoidance of doubt, delivery of
Common Stock issued upon conversion by DWAC shall constitute delivery for
purposes hereof.

 

Notwithstanding the foregoing, unless the Holder delivers to the Company written
notice at least sixty-one (61) days prior to the effective date of such notice
that the provisions of this paragraph (the “Limitation on Ownership”) shall not
apply to such Holder, in no event shall a holder of Debentures have the right to
convert Debentures into, nor shall the Company issue to such Holder, shares of
Common Stock to the extent that such conversion would result in the Holder and
its affiliates together beneficially owning more than 4.99% of the then issued
and outstanding shares of Common Stock. For purposes hereof, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.

 

b.     So long as no Event of Default (as defined in Section 10) shall have
occurred and be continuing, the Company may at its option call for redemption
all or part of the Debentures, with the exception of any portion thereof which
is the subject of a previously-delivered Notice of Conversion, prior to the
Maturity Date, as follows:

 

  (i) The Debentures called for redemption shall be redeemable for an amount
(the “Redemption Price”) equal to: (i) if the Redemption Date (as defined below)
is ninety (90) days or less from the date of issuance of this Debenture, one
hundred twenty percent (120%) of the sum of the Principal Amount so redeemed
plus interest accrued on such Principal Amount through the day immediately
preceding the Redemption Date; (ii) if the Redemption Date is greater than or
equal to ninety one (91) days from the date of issuance of this Debenture and
less than or equal to one hundred eighty (180) days from the date of issuance of
this Debenture, one hundred thirty percent (130%) of the sum of the Principal
Amount so redeemed plus interest accrued on such Principal Amount through the
day immediately preceding the Redemption Date; or (iii) if the Redemption Date
is greater than or equal to one hundred eighty one (181) days from the date of
issuance of this Debenture, one hundred forty percent (140%) of the sum of the
Principal Amount so redeemed plus interest accrued on such Principal Amount
through the day immediately preceding the Redemption Date. The date upon which
the Debentures are redeemed and paid shall be referred to as the “Redemption
Date” (and, in the case of multiple redemptions of less than the entire
outstanding Principal Amount, each such date shall be a Redemption Date with
respect to the corresponding redemption).

 

 

(ii)

If fewer than all outstanding Debentures are to be redeemed and are held by
different investors, then all Debentures shall be partially redeemed on a pro
rata basis.

 

 
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(iii)

Prior to the Redemption Date, the Company shall deposit into escrow an amount
sufficient for the payment of the aggregate Redemption Price of the Debentures
being called for redemption and shall make such funds available on and after the
Redemption Date for payment to the Holders who present their Debentures and
otherwise comply with the Company’s instructions contained in the Redemption
Notice (as defined below).

 

(iv)

On the Redemption Date, the Company shall cause the Holders whose Debentures
have been presented for redemption to be issued payment of the Redemption Price.
In the case of a partial redemption, the Company shall also issue new Debentures
to the Holders for the principal amount remaining outstanding after the
Redemption Date promptly after the Holders’ presentation of the Debentures
called for redemption.

 

(v)

To effect a redemption the Company shall provide a written notice to the
Holder(s) not more than two (2) days prior to the Redemption Date (the
“Redemption Notice”), setting forth the following:

 

1.

the Redemption Date;

 

2.

the Redemption Price;

 

3.

the aggregate principal amount of the Debentures being called for redemption;

 

4.

a statement instructing the Holders to surrender their Debentures for redemption
and payment of the Redemption Price, including the name and address of the
Company or, if applicable, the paying agent of the Company, where Debentures are
to be surrendered for redemption;

 

5.

a statement advising the Holders that (x) interest will cease to accrue on the
Debentures (or, in the case of a partial redemption, that portion of the
Principal Amount being called for redemption) as of the Redemption Date, and (y)
that the Debentures (or, in the case of a partial redemption, that portion of
the Principal Amount being called for redemption) as of the Redemption Date will
cease to be convertible into Common Stock as of the Redemption Date; and

 

6.

in the case of a partial redemption, a statement advising the Holders that after
the Redemption Date a substitute Debenture will be issued by the Company after
deduction the portion thereof called for redemption, at no cost to the Holder,
if the Holder so requests.

 

Notwithstanding the foregoing, in the event the Company issues a Redemption
Notice but fails to fund the redemption on the Redemption Date, then such
Redemption Notice shall be null and void, and (i) the Holder(s) shall be
entitled to convert the Debentures previously the subject of the Redemption
Notice, and (ii) the Company may not redeem such Debentures for at least thirty
(30) days following the intended Redemption Date that was voided, and the
Company shall be required to pay to the Holder(s) or fund into escrow the
Redemption Price simultaneously with the issuance of a Redemption Notice in
connection with any subsequent redemption pursued by the Company.

 

 
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3.     Unless demand has otherwise been made by the Holder in writing for
payment in cash as provided hereunder, and so long as no Event of Default shall
exist (whether or not notice thereof has been delivered by the Holder to the
Company), any Debentures not previously tendered to the Company for conversion
as of the Maturity Date shall be deemed to have been surrendered for conversion,
without further action of any kind by the Company or any of its agents,
employees or representatives, as of the Maturity Date at the Conversion Price
applicable on the Maturity Date (“Mandatory Conversion”).

 

4.     No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional to convert this Debenture into
Common Stock, at the time, place, and rate herein prescribed. This Debenture is
a direct obligation of the Company.

 

5.     If the Company (a) merges or consolidates with another corporation or
business entity and the Company is not the surviving entity or (b) sells or
transfers all or substantially all of its assets to another Person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee will agree that this Debenture may thereafter
be converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any (i) proposed
merger or consolidation where the Company is not the surviving entity or (ii)
sale or transfer of all or substantially all of the assets of the Company (in
either such case, a "Sale"), the Holder shall have the right to convert by
delivering a Notice of Conversion to the Company within fifteen (15) days of
receipt of notice of such Sale from the Company.

 

6.     If, at any time while any portion of this Debenture remains outstanding,
the Company effectuates a stock split or reverse stock split of its Common Stock
or issues a dividend on its Common Stock consisting of shares of Common Stock or
otherwise recapitalizes its Common Stock, the Conversion Price shall be
equitably adjusted to reflect such action. By way of illustration, and not in
limitation, of the foregoing (i) if the Company effectuates a 2:1 split of its
Common Stock, thereafter, with respect to any conversion for which the Company
issues the shares after the record date of such split, the Conversion Price
shall be deemed to be one-half of what it had been calculated to be immediately
prior to such split; (ii) if the Company effectuates a 1:10 reverse split of its
Common Stock, thereafter, with respect to any conversion for which the Company
issues the shares after the record date of such reverse split, the Conversion
Price shall be deemed to be the amount of such Conversion Price calculated
immediately prior to the record date multiplied by 10; and (iii) if the Company
declares a stock dividend of one share of Common Stock for every 10 shares
outstanding, thereafter, with respect to any conversion for which the Company
issues the shares after the record date of such dividend, the Conversion Price
shall be deemed to be the amount of such Conversion Price calculated immediately
prior to such record date multiplied by a fraction, of which the numerator is
the number of shares for which a dividend share will be issued and the
denominator is such number of shares plus the dividend share(s) issuable or
issued thereon.

 

7.     All payments contemplated hereby to be made “in cash” shall be made by
wire transfer of immediately available funds in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts. All payments of cash and each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
Holder to an account designated by the Holder to the Company and if the Holder
has not designated any such accounts at the address last appearing on the
Debenture Register of the Company as designated in writing by the Holder from
time to time; except that the Holder may designate, by notice to the Company, a
different delivery address for any one or more specific payments or deliveries.

 

 
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8.     The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except in compliance with the terms of the
Securities Purchase Agreement and the Registration Rights Agreement and under
circumstances which will not result in a violation of the Securities Act or any
applicable state Blue Sky or foreign laws or similar laws relating to the sale
of securities.

 

9.     This Debenture shall be governed by and construed in accordance with the
laws of the State of New York. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of Miami,
Dade County, Florida or the state courts of the State of Florida sitting in the
City of Miami, Dade County in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. To the extent determined
by such court, the Company shall reimburse the Holder for any reasonable legal
fees and disbursements incurred by the Holder in enforcement of or protection of
any of its rights under this Debenture or the Securities Purchase Agreement.

 

10.     The following shall constitute an "Event of Default":

 

a.     The Company fails in the payment of principal or interest on this
Debenture as required to be paid in cash hereunder, and payment shall not have
been made for a period of five (5) business days following the payment due date;
or

 

b.     Any of the representations or warranties made by the Company herein, in
the Securities Purchase Agreement, the Registration Rights Agreement, dated as
of December 16, 2013 between the Company and the Buyer therein (the
"Registration Rights Agreement"), or in any certificate or financial or other
written statements heretofore or hereafter furnished by the Company to in
connection with the execution and delivery of this Debenture, the Securities
Purchase Agreement or the Registration Rights Agreement, shall be false or
misleading (including without limitation by way of the misstatement of a
material fact or the omission of a material fact) in any material respect at the
time made (as to which no cure period shall apply); or

 

c.     The Company (i) fails to timely file required SEC reports when due,
becomes, is deemed to be or asserts that it is a “shell company” at any time for
purposes of the 1933 Act, and Rule 144 promulgated thereunder or otherwise takes
any action, or refrains from taking any action, the result of which makes Rule
144 under the 1933 unavailable to the Buyer for the sale of their Securities,
(ii) 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, (iii) 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 as and when required by this Debenture or the Registration
Rights Agreement, and such transfer is otherwise lawful or (iv) fails to remove
any restrictive legend or to cause its Transfer Agent to transfer any
certificate or any shares of Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this Debenture, the Agreement or the
Registration Rights Agreement and such legend removal is otherwise lawful (no
cure period shall apply in the case of clauses (i) through iv) above, inclusive)
; or

 

 
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d.     The Company shall fail to perform or observe, in any material respect (i)
any other covenant, term, provision, condition, agreement or obligation of the
Debenture, provided that, other than in the case of such failure under Section 5
hereof, as to which no cure period shall apply, such failure shall continue
uncured for a period of thirty (30) days after written notice from the holder of
such failure, or (ii) any covenant, term, provision, condition, agreement or
obligation of the Company under the Securities Purchase Agreement or the
Registration Rights Agreement and such failure shall continue uncured for a
period of either (a) three (3) days after the occurrence of the Company’s
failure under Section 4(d), (e) (except as described in clause (i) of Section
10(c), as to which Section 10(c) shall control), (f), (g) or (h) of the
Securities Purchase Agreement, or (b) thirty (30) days after the occurrence of
the Company’s failure under any other provision of the Securities Purchase
Agreement or of the Registration Rights Agreement, as the case may be; or

 

e.     The Company shall (1) admit in writing its inability to pay its debts
generally as they mature; (2) make an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3) apply for or consent to the
appointment of a trustee, liquidator or receiver for its or for a substantial
part of its property or business; or

 

f.     A trustee, liquidator or receiver shall be appointed for the Company or
for a substantial part of its property or business without its consent and shall
not be discharged within sixty (60) days after such appointment; or

 

g.     Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within sixty (60) days thereafter; or

 

h.     Any money judgment, writ or warrant of attachment, or similar process
(including an arbitral determination), in excess of Fifty Thousand Dollars
($50,000) in the aggregate shall be entered or filed against the Company or any
of its properties or other assets; or

 

i.     The occurrence of an event of default under the terms of any indebtedness
of the Company or any subsidiary (including but not limited to any Subsidiary)
of the Company in the aggregate amount of $50,000 or more which is not waived by
the creditors under such indebtedness (as to which no cure period shall apply);
or

 

j.     Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty (60) days after such
institution or the Company shall by any action or answer approve of, consent to,
or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding; or

 

 
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k.     The issuance of an order, ruling, finding or similar adverse
determination by the Securities and Exchange Commission, the Secretary of State
of the State of Florida, the National Association of Securities Dealers, Inc. or
any other securities regulatory body (whether in the United States, Canada or
elsewhere) having proper jurisdiction that the Company and/or any of its past or
present directors or officers have committed a material violation of applicable
securities laws or regulations; or

 

l.     The Company shall have its Common Stock suspended or delisted from a
national securities exchange or an electronic quotation service such as the
Over-The-Counter Bulletin Board for a period in excess of five (5) trading days;
or

 

m.     Any of the following shall occur: (i) there shall occur a breach or
default under (a) any agreement identified by the Company in its SEC Filings as
a material agreement or (b) any note or other form of indebtedness in favor of
the Company (collectively, the “Material Agreements”), irrespective of whether
such breach or default was waived, and (iii) any other event, circumstance or
combination thereof shall have occurred which, singly or when taken as a whole,
result in a Material Adverse Effect.

 

Then, or at any time thereafter, the Company shall immediately give written
notice of the occurrence of such Event of Default to the Holders of all
Debentures then outstanding, and in each and every such case, unless such Event
of Default shall have been waived in writing by a majority in interest of the
Holders of the Debentures (which waiver shall not be deemed to be a waiver of
any subsequent default), then at the option of a majority in interest of the
Holders and in the discretion of a majority in interest of the Holders, (i) the
interest rate applicable to the Debentures shall be increased to the lesser of
eighteen percent (18%) per annum and the maximum interest rate allowable under
applicable law, and (ii) the Holder may at its option and discretion declare
this Debenture, together with all accrued and unpaid interest thereon, in an
amount equal to one hundred forty percent (140%) of the Principal Amount plus
accrued and unpaid interest (the “Acceleration Amount”), to be immediately due
and payable, without presentment, demand, protest or notice of any kinds, all of
which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding. At its option, a Holder
may elect to convert the Debenture pursuant to Section 2 notwithstanding the
prior declaration of a default and acceleration, in the sole discretion of such
Holder. A majority in interest of the Holders may immediately enforce any and
all of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. Notwithstanding the foregoing, in the case of a
default under Section 10(c), the Holder of the Debenture sought to be converted,
transferred or de-legended, as the case may be, acting singly, shall have the
sole and absolute discretion to increase the applicable interest rate on the
Debentures held by such Holder and/or to declare the Debenture(s) held by such
Holder to be immediately due and payable. The Company expressly acknowledges and
agrees that the Acceleration Amount as so increased in the event of a default is
reasonable and appropriate due to the inability to define the financial hardship
that the Company’s default would impose on the Holders.

 

11.     Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.

 

 
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12.     This Debenture may be amended only by the written consent of the parties
hereto. Notwithstanding the foregoing, the principal amount of this Debenture
shall automatically be reduced by any and all Conversion Amounts (to the extent
that the same relate to principal hereof). In the absence of manifest error, the
outstanding principal amount of the Debenture on the Company’s book and records
shall be the correct amount.

 

13.     No waivers or consents in regard to any provision of this Debenture may
be given other than by an instrument in writing signed by the Holder.

 

[Signature Page Follows]

 

 
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by
an officer thereunto duly authorized.

 

 

CYCLONE POWER TECHNOLOGIES, INC.

 

 

 

 

 

 

 

By:

/s/ Christopher Nelson

 

 

Name:  Christopher Nelson

 

 

Title:  President

 

[Signature Page to Convertible Debenture]

 

 

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ANNEX A

 

NOTICE OF CONVERSION

 

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

 

The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Debenture into Shares of Common Stock of Cyclone
Power Technologies, Inc., a Florida corporation (the "Company"), according to
the conditions hereof, as of the date written below. After giving effect to the
conversion requested hereby, the outstanding principal amount of such debenture
is $____________________, absent manifest error.

 

Conversion Date

 

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Applicable Conversion Price

 

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Signature

 

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Print Name

 

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Address

 

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