ncoatsb2ex4-5.htm


    
      

      

    

    
      Exhibit
        4.5

       

    

    
      	
              THIS
                DEBENTURE AND THE SHARES PURCHASABLE HEREUNDER HAVE BEEN ACQUIRED
                FOR
                INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                OF
                1933.  NEITHER THIS DEBENTURE NOR SUCH SHARES MAY BE SOLD OR
                TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION IN EFFECT UNDER SUCH
                ACT
                UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL OR OTHER EVIDENCE
                REASONABLY ACCEPTABLE TO IT DEMONSTRATING THAT SUCH SALE OR TRANSFER
                IS
                EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
                OF SAID
                ACT OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH
                ACT.

              


              THE
                PRINCIPAL AMOUNT REPRESENTED BY THIS DEBENTURE AND, ACCORDINGLY,
                THE
                SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS
                SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 1 OF THIS
                DEBENTURE.

            


    

    


    


    CONVERTIBLE
      DEBENTURE

    


    
      	
              US
                $250,000

            	
              May
                14, 2007

            


    

    

      FOR
        VALUE
        RECEIVED, nCoat, Inc., a Delaware corporation (the “Company” or the
“Corporation”), as of May 10, 2007 (“Date of Issuance”), hereby
        unconditionally promises to pay to the order of Coach Capital
        LLC or its assigns (the “Registered Holder”), at such
        address or at such other place as may be designated in writing by the Registered
        Holder, the aggregate principal sum of TWO HUNDRED FIFTY THOUSAND DOLLARS
        ($250,000), together with interest at the rate of 0.5 percent above the prime
        interest rate as reported by the Wall Street Journal’s bank survey for today’s
        date (this “Debenture”). Subject to the other provisions of this
        Debenture, the principal of this Debenture shall mature and become due and
        payable in full on the later of April 9, 2008 and the first aniversary of
        the
        last deposit of the total remaining monies contemplated by this debenture
        (the
“Maturity Date”).  As of the date hereof, the Company
        acknowledges the receipt of $100,000 from the Registered Holder, together
        with
        the commitment from the Registered Holder that the additional $250,000 will
        be
        ordered for wire this date hereof.  All payments of principal by the
        Company under this Debenture shall be made in United States dollars to an
        account specified by the Registered Holder to the Company in writing prior
        to
        the Maturity Date.

       

    

    
      	
               

            	
              1.

            	
              CONVERSION
                OF PRINCIPAL AND INTEREST.

            


    

     

    
      	
               

            	
              (a)

            	
              By
                the Registered Holder.

            


    

     

    (i)           This
      Debenture may be converted by the Registered Holder, subject to the restrictions
      below, on or before the Maturity Date, in whole or in part, into that number
      of
      shares of Common Stock equal to the principal amount of this Debenture (or
      the
      portion being converted), together with all interest accrued thereon and unpaid
      as of the date of the conversion, divided by the Conversion Price (the
“Conversion Shares”) by surrendering this Debenture, with the conversion
      notice appended hereto as Exhibit I duly executed by the Registered
      Holder at the principal executive offices of the Company, or at such other
      office or agency as the Company may designate.

     

    


    
      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

    

    


    (ii)           Each
      conversion of this Debenture pursuant to this paragraph (a) shall be deemed
      to
      have been effected immediately prior to the close of business on the day on
      which this Debenture shall have been surrendered to the Company as provided
      above.  At such time, the person or persons in whose name or names any
      certificates for Conversion Shares shall be issuable upon such conversion as
      provided below shall be deemed to have become the holder or holders of record
      of
      the Conversion Shares represented by such certificates.

     

    (iii)           As
      soon as practicable after the conversion of this Debenture in full or in part,
      the Company, at its expense, will cause to be issued in the name of, and
      delivered to, the Registered Holder, or as such Registered Holder (upon payment
      by such Registered Holder of any applicable transfer taxes) may
      direct:

     

    a)           a
      certificate or certificates for the number of Conversion Shares to which the
      Registered Holder shall be entitled upon such conversion; and

     

    b)           in
      case such conversion is in part only, a new Debenture or Debentures (dated
      the
      date hereof) of like tenor, in principal amount equal to the principal amount
      hereof less the amount that has been converted into Conversion
      Shares.

     

    (b)       By
      the Company.  Conversion of this Debenture may not be forced by
      the Company.

     

    (c)       Conversion
      Price.  The Conversion Price hereunder shall be
      $0.50.

     

    
      	
               

            	
              2.

            	
              ADJUSTMENTS.

            


    

     

    (a)   Adjustment
      for Stock Splits and Combinations.  If the Company shall at any
      time or from time to time after the date on which this Debenture was first
      issued (the “Original Issue Date”) effect a subdivision of the
      outstanding Common Stock, with the sole exception of the Anticipated Split
      discussed above, the Conversion Price shall be proportionately increased to
      reflect the effect of such stock split or subdivision.  If the Company
      shall at any time or from time to time after the Original Issue Date combine
      or
      reverse split the outstanding shares of Common Stock, the Conversion Price
      shall
      be proportionately decreased.  Any adjustment under this paragraph
      shall become effective at the close of business on the date the subdivision,
      reverse split or combination becomes effective.  For example, if the
      Company were to engage in the Anticipated Split, the Conversion Price would
      remain at $0.50, which, by way of further example, would result in the issuance,
      upon conversion of $500,000 of principal, of 1,000,000 of the common shares
      of
      the Company.

     

    


     

    


    
      
        
          
          

        

        
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    (b)  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 or in cash or other property, then and in each such event the
      Registered Holder shall receive upon conversion hereof, in addition to the
      Conversion Shares issuable hereunder, the kind and amount of securities of
      the
      Company and/or cash and other property which the Registered Holder would have
      been entitled to receive had this Debenture been converted on the date of such
      event.

     

    (c)  Adjustment
      for Mergers or Reorganizations, etc.  If there shall occur any
      reclassification, reorganization, recapitalization, consolidation, sale of
      all
      or substantially all assets or merger involving the Company in which the Common
      Stock is converted into or exchanged for securities, cash or other property
      (other than a transaction covered by subsection 2(b) above), then,
      following any such reclassification, reorganization, recapitalization,
      consolidation, sale of all or substantially all assets or merger, and without
      payment of any additional consideration thereof, the Registered Holder shall
      receive upon conversion hereof the kind and amount of securities, cash or other
      property which the Registered Holder would have been entitled to receive if,
      immediately prior to such reclassification, reorganization, recapitalization,
      consolidation or merger, sale of all or substantially all assets, this Debenture
      had been converted.

     

    3.      
        FRACTIONAL SHARES.  The Company shall not be
      required upon the conversion of this Debenture to issue any fractional shares,
      and shall round any fractional shares to the next highest whole number of
      shares.  If a fractional share interest arises upon any conversion or
      conversion of the Debenture, the Company shall eliminate such fractional share
      interest by paying the Registered Holder an amount computed by multiplying
      the
      fractional interest by the Fair Market Value of a full share of common
      Stock.

     

    The
“Fair
      Market Value” per share of Common Stock shall be determined as

     

    (i)           if
      the Common Stock is listed on a national securities exchange, the NASDAQ Small
      Cap Market, the NASDAQ National Market, the OTCBB or another nationally
      recognized trading system as of the Conversion Date, the Fair Market Value
      per
      share of Common Stock shall be deemed to be the average of the high and low
      reported sale prices per share of Common Stock thereon on the trading day
      immediately preceding the Conversion Date (provided that if no such price is
      reported on such day, the Fair Market Value per share of Common Stock shall
      be
      determined pursuant to clause (ii)).

     

    (ii)           the
      Fair Market Value per share of Common Stock shall be deemed to be the average
      daily closing price of the Company’s Common Stock for the four trading days
      prior to the Holder’s providing notice of conversion.

     

    
      	
               

            	
              4.

            	
              REPRESENTATIONS
                AND WARRANTIES BY THE REGISTERED
                HOLDER.

            


    

     

    (a)  The
      Registered Holder represents and warrants to the Company that it is not an
      affiliate of the Company and will, should it become an affiliate of the Company,
      notify the Company of the change in its status.

     

    


    
      
        
          
          

        

        
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    (b)  Accredited
      Status.  The Registered Holder, by initialing the applicable
      paragraph (a) through (g) below, hereby
      represents and warrants that the Registered Holder is an "Accredited
      Investor" as defined in Regulation D under the Securities Act, because the
      Registered Holder meets the requirements set forth in one or more of the
      enumerated categories.  Place your initials in the space provided
      in the beginning of each applicable paragraph thereby representing and
      warranting as to the applicability to the Registered Holder of the initialed
      paragraph or paragraphs.

    

      
        	
                 

              	
                [

              	
                ]           (a)
                  any individual Registered Holder whose net worth, or joint net
                  worth with
                  that person's spouse at the time of his purchase, exceeds $1,000,000
                  (including any individual participant of a Keogh
                  Plan, IRA or IRA Rollover Registered
                  Holder);

              


      

      


      
        	
                 

              	
                [

              	
                ]           (b)
                  any individual Registered Holder who had an income in excess of
                  $200,000
                  in each of the two most recent years or joint income with that
                  person's
                  spouse in excess of $300,000 in each of those years and who reasonably
                  expects an income in excess of the same income level in the current
                  year
                  (including any individual participant of a Keogh Plan, IRA or IRA
                  Rollover
                  Registered Holder);

              


      

      


      
        	
                 

              	
                [

              	
                ]           (c)
                  any corporation or partnership not formed for the specific purpose
                  of
                  making an investment in the Common Stock, with total assets in
                  excess of
                  $5,000,000;

              


      

      


      
        	
                 

              	
                [

              	
                ]           (d)
                  any trust, which is not formed for the specific purpose of investing
                  in
                  the Common Stock, with total assets in excess of $5,000,000, whose
                  purchase is directed by a sophisticated person, as such term is
                  defined in
                  Rule 506(b) of Regulation D under the Securities
                  Act;

              


      

      


      
        	
                 

              	
                [

              	
                ]           (e)
                  any ERISA Plan if the investment decision is made by a plan fiduciary,
                  as
                  defined in section 3(21) of ERISA, which is either a bank, insurance
                  company, or registered investment adviser, or the Plan has total
                  assets in
                  excess of $5,000,000;

              


      

      


      
        	
                 

              	
                [

              	
                ]           (f)
                  any individual Registered Holder who is an executive officer or
                  director
                  of the Company.; or

              


      

      


      
        	
                 

              	
                [

              	
                ]           (g)
                  any entity in which all of the equity owners are Accredited Investors
                  under paragraphs (a), (b), (c) or (f) above or any other entity
                  meeting
                  required "Accredited Investor" standards under Rule 501 of Regulation
                  D
                  under the Securities Act and applicable State securities law criteria.
                  IF
                  THE REGISTERED HOLDER IS AN ENTITY IN WHICH ALL OF THE EQUITY OWNERS
                  ARE
                  ACCREDITED INVESTORS, THE REGISTERED HOLDER MUST PROVIDE A SUBSCRIPTION
                  AGREEMENT FROM EACH OF ITS EQUITY
                  OWNERS.

              


      

    

     

     

     

    


    
      
        
          
          

        

        
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    (c)  Liquidity.  Registered
      Holder presently has sufficient liquid assets to purchase the
      Debenture.  Registered Holder's overall commitments to investments
      that are not readily marketable is not disproportionate to Registered Holder's
      total assets, and Registered Holder's investment in the Company will not cause
      such overall commitment to become excessive.  Registered Holder has
      adequate means of providing for its current needs and contingencies and has
      no
      need for liquidity in its investment in the Company or for a source of income
      from the Company.  Registered Holder is capable of bearing the
      economic risk and the burden of the investment contemplated by this Agreement,
      including, but not limited to, the possibility of the complete loss of the
      value
      of the Conversion Shares and the limited transferability of the Conversion
      Shares, which may make the liquidation of the Conversion Shares impossible
      in
      the near future.

    


    (d)  Organization,
      Standing, Authorization.  If a corporation, limited liability
      company, or other entity, Registered Holder is duly organized, validly existing,
      and in good standing under the laws of its State of organization, and has the
      requisite power and authority to purchase the Debenture.  The purchase
      of the Debenture has been duly authorized by all required action of Registered
      Holder's members or managers.  The person executing, on Registered
      Holder's behalf, this Debenture and any other documents or instruments executed
      by Registered Holder in connection with this Debenture is duly authorized to
      do
      so.

    


    (e)  Sole
      Party in Interest.  Registered Holder represents that it is the
      sole and true party in interest, and no other person or entity has or will
      have
      upon the purchase of the Debenture or the issuance of the Conversion Shares
      any
      beneficial ownership interest in the Conversion Shares or any portion of the
      Conversion Shares, whether direct or indirect.

    


    (f)   Investment
      Purpose.  Registered Holder represents that it is acquiring the
      Debenture for its own account and for investment purposes and not on behalf
      of
      any other person or entity or for or with a view to resale or
      distribution.

    


    (g)  Knowledge
      and Experience.  Registered Holder has been advised, to the
      Registered Holder’s satisfaction and understanding, with respect to the
      advisability of an investment in the Company and the
      Debenture.  Registered Holder is experienced in evaluating and making
      speculative investments, and has the capacity to protect its interests in
      connection with the acquisition of the Debenture and the Conversion
      Shares.  Registered Holder has such knowledge and experience in
      financial and business matters in general, and investments in the computer
      industry in particular, that Registered Holder is capable of evaluating the
      merits and risks of Registered Holder's investment in the
      Company.  Registered Holder has been informed that an investment in
      the Company is speculative and have concluded that Registered Holder's proposed
      investment is appropriate in light of its overall investment objectives and
      financial situation.

    


    


    
      
        
          
          

        

        
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    (h)  Disclosure,
      Access to Information.  Registered Holder confirms that it has
      received and thoroughly read and is familiar with and understands this
      Agreement, and that all documents, records, books and other information
      pertaining to Registered Holder's investment in the Company requested by
      Registered Holder have been made available for inspection and copying and that
      there are no additional materials or documents that have been requested by
      Registered Holder that have not been made available by the
      Company.  Registered Holder further acknowledges it has had an
      opportunity to ask questions of and receive answers from the Company's
      representatives, and that any decision not to ask questions of the Company's
      representatives was a conscious decision on Registered Holder’s part and
      reflects Registered Holder's belief that no additional information is necessary
      in order to make an informed decision about investing in the
      Company.

    


    (i)  
      Accuracy of Representations and Information.  All
      representations made by Registered Holder in this Debenture and all documents
      and instruments related to this Debenture, and all information provided by
      Registered Holder to the Company concerning Registered Holder and its respective
      financial positions is correct and complete as of the date hereof.  If
      there is any material change in such information before the actual issuance
      of
      the Debenture or the Conversion Shares, Registered Holder immediately will
      provide such information to the Company.

    


    (j)   No
      Representations.  None of the following have ever been
      represented, guaranteed, or warranted to Registered Holder by the Company or
      any
      of its employees, agents, representatives or affiliates, or any broker or any
      other person, expressly or by implication:

    


    (1)           The
      approximate or exact length of time that Registered Holder will be required
      to
      remain as owner of the Debenture or the Conversion Shares;

    


    (2)           The
      percentage of profit or amount of or type of consideration, profit or loss
      (including tax write-offs or other tax benefits) to be realized, if any, as
      a
      result of an investment in the Debenture or the Conversion Shares;
      or

    


    


    
      
        
          
          

        

        
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    (3)           The
      past performance or experience on the part of the Company or any affiliate
      or
      their associates, agents or employees, or of any other person as being
      indicative of future results of an investment in the Debenture or the Conversion
      Shares.

    


    (k)  No
      Representations by Brokers or Finders.  Registered Holder
      represents in making its decision to purchase the Debenture and the Conversion
      Shares, it is not relying on any representations, warranties, promises, or
      other
      inducements to purchase that were made by any broker, finder, or selling agent
      of the Company, and that the only representations, warranties, or other
      inducements to purchase are contained in the written materials provided by
      the
      Company to the Registered Holder.

    


    
      	
               

            	
              5.

            	
              REQUIREMENTS
                FOR TRANSFER.

            


    

     

    (a)  This
      Debenture and the Conversion Shares shall not be sold or transferred unless
      either (i) their transfer first shall have been registered under the Securities
      Act of 1933, as amended (the “the Act”), and under applicable state securities
      or blue sky laws, or (ii) the Company first shall have been furnished with
      an
      opinion of legal counsel, reasonably satisfactory to the Company, to the effect
      that such sale or transfer is exempt from the registration requirements of
      the
      Act.

     

    (b)  Each
      certificate representing Conversion Shares shall bear a legend substantially
      in
      the following form:

     

    “The
      shares represented by this certificate have been acquired for investment and
      have not been registered under the securities act of 1933.  Such
      shares may not be sold or transferred in the absence of such registration in
      effect under such act unless the company receives an opinion of counsel or
      other
      evidence reasonably acceptable to it demonstrating that such sale or transfer
      is
      exempt from the registration and prospectus delivery requirements of said act
      or
      unless sold pursuant to rule 144 of such act.

     

    The
      foregoing legend shall be removed from the certificates representing any
      Conversion Shares, at the request of the holder thereof, at such time as
      (i) they become eligible for resale pursuant to an effective registration
      statement or Rule 144(k) under the Act or (ii) the Company shall have
      received either an opinion of counsel or a “no-action” letter from the SEC to
      the effect that any transfer of the Conversion Shares represented by such
      certificates will not violate the Act and applicable state securities
      laws.

     

    6.       
       EVENT OF DEFAULT.  The occurrence of any of following
      events shall constitute an “Event of Default” hereunder:

     

    (a)  the
      failure of the Company to make any payment of principal on this Debenture when
      due, whether at maturity, upon acceleration, or otherwise; or

     

    


    
      
        
          
          

        

        
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    (b)  the
      Company makes an assignment for the benefit of creditors or admits in writing
      its inability to pay its debts generally as they become due; or an order,
      judgment or decree is entered adjudicating the Company as bankrupt or insolvent;
      or any order for relief with respect to the Company is entered under the Federal
      Bankruptcy Code or any other bankruptcy or insolvency law; or the Company
      petitions or applies to any tribunal for the appointment of a custodian,
      trustee, receiver or liquidator of the Company or of any substantial part of
      the
      assets of the Company, or commences any proceeding relating to it under any
      bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
      dissolution or liquidation law of any jurisdiction; or any such petition or
      application is filed, or any such proceeding is commenced, against the Company
      and either (i) the Company by any act indicates its approval thereof, consents
      thereto or acquiescence therein or (ii) such petition application or proceeding
      is not dismissed within sixty (60) days.

     

    (c)  Upon
      the occurrence of any such Event of Default all unpaid principal under this
      Debenture shall become immediately due and payable.

     

    7.  
            NO
      IMPAIRMENT.  The Company will not, by amendment of its charter
      through reorganization, transfer of assets, consolidation, merger, dissolution,
      issuance or sale of securities or any other voluntary action, avoid or seek
      to
      avoid the observance or performance of any of the terms of this Debenture,
      but
      will at all times in good faith assist in the carrying out of all such terms
      and
      in the taking of all such action as may be necessary or appropriate in order
      to
      protect the rights of the holder of this Debenture against
      impairment.

     

    
      	
               

            	
              8.

            	
              NOTICES
                OF RECORD DATE, ETC.  In the
                event:

            


    

     

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

     

    (b)  of
      any capital reorganization of the Company, any reclassification of the Common
      Stock of the Company, any consolidation or merger of the Company with or into
      another corporation (other than a consolidation or merger in which the Company
      is the surviving entity and its Common Stock is not converted into or exchanged
      for any other securities or property), or any transfer of all or substantially
      all of the assets of the Company; or

     

    (c)  of
      the voluntary or involuntary 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 Registered
      Holder a notice specifying, as the case may be, (i) the record date for such
      dividend, distribution or right, and the amount and character of such dividend,
      distribution or right, or (ii) the effective date on which such reorganization,
      reclassification, consolidation, merger, transfer, 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 other stock or securities at
      the
      time deliverable upon the conversion of this Debenture) 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, transfer, dissolution, liquidation
      or
      winding-up.  Such notice shall be mailed at least ten days prior to
      the record date or effective date for the event specified in such
      notice.

     

    


    
      
        
          
          

        

        
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    9.       
       STOCK FULLY PAID, RESERVATION OF STOCK.  All of the
      Conversion Shares issuable upon the conversion of the rights represented by
      this
      Debenture will, upon issuance and receipt of the purchase price therefor, be
      validly issued, fully paid and nonassessable, and free from all taxes, liens
      and
      charges except for restrictions on transfer provided for herein or under
      applicable federal and state securities laws.  The Company will at all
      times reserve and keep available, solely for issuance and delivery upon the
      conversion of this Debenture, such number of shares of Common Stock and other
      securities, cash and/or property, as from time to time shall be issuable upon
      the conversion of this Debenture.

     

    10.        REPLACEMENT
      OF DEBENTURES.  Upon receipt of evidence reasonably satisfactory
      to the Company of the loss, theft, destruction or mutilation of this Debenture
      and (in the case of loss, theft or destruction) upon delivery of an indemnity
      agreement (without any obligation for a surety or other security therefor)
      in an
      amount reasonably satisfactory to the Company, or (in the case of mutilation)
      upon surrender and cancellation of this Debenture, the Company will issue,
      in
      lieu thereof, a new Debenture of like tenor.

     

    11.        TRANSFERS,
      ETC.

     

    (a)  The
      Company will maintain a register containing the name and address of the
      Registered Holder of this Debenture.  The Registered Holder may change
      its or his address as shown on the Debenture register by written notice to
      the
      Company requesting such change.

     

    (b)  This
      Debenture and all rights hereunder are transferable, in whole or in part, upon
      surrender of this Debenture with a properly executed assignment in a form
      reasonably acceptable to the Company at the principal executive offices of
      the
      Company.

     

    (c)  Until
      any transfer of this Debenture is made in the Debenture register, the Company
      may treat the Registered Holder as the absolute owner hereof for all purposes;
      provided, however, that if and when this Debenture is properly
      assigned in blank, the Company may (but shall not be obligated to) treat the
      bearer hereof as the absolute owner hereof for all purposes, notwithstanding
      any
      notice to the contrary.

     

    12.        MAILING
      OF NOTICES, ETC.  All notices and other communications from the
      Company to the Registered Holder shall be mailed by first-class certified or
      registered mail, postage prepaid, to the address last furnished to the Company
      in writing by the Registered Holder.  All notices and other
      communications from the Registered Holder or in connection herewith to the
      Company shall be mailed by first-class certified or registered mail, postage
      prepaid, to the Company at its principal executive office.  If the
      Company should at any time change the location of its principal executive office
      to a place other than as set forth below, it shall give prompt written notice
      to
      the Registered Holder and thereafter all references in this Debenture to the
      location of its principal executive office at the particular time shall be
      as so
      specified in such notice.

     

    13.        NO
      RIGHTS AS STOCKHOLDER.  Until the conversion of this Debenture,
      the Registered Holder shall not have any rights by virtue hereof as a
      stockholder of the Company.

     

    


    
      
        
          
          

        

        
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      14.        USE
        OF PROCEEDS.  The Company will lend the proceeds of the sale of
        the Debenture to nCoat, or one or more of nCoat’s subsidiaires, pursuant to a
        note with the same interest and payment terms as this
        Debenture.

    

     

    15.        CHANGE
      OR WAIVER.  Any term of this Debenture may be amended or waived
      upon the written consent of the Company and the Registered Holder.

     

    16.        SECTION HEADINGS.  The
      Section headings in this Debenture are for the convenience of the parties and
      in
      no way alter, modify, amend, limit or restrict the contractual obligations
      of
      the parties.

     

    17.        GOVERNING
      LAW.  This Debenture will be governed by and construed in
      accordance with the internal laws of the State of Delaware without giving effect
      to the conflict or choice of law provision thereof that would give rise the
      application of the domestic substantive law of any other
      jurisdiction.

     

    [SIGNATURE
      PAGES FOLLOW.]

     

    


     

    


     

    


     

    


     

    


     

    


     

    


    
      
        
          
          

        

        
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    EXECUTED
      as of the Date of Issuance indicated above.

     

    
      	 	
              nCOAT,
                Inc.

            
	 	 	 
	 	 	 
	 	
              By: /s/
                Terry R.
                Holmes                                    
                

            
	 	
              Name:
                Terry R. Holmes

            
	 	
              Title:
                President

            
	 	 	 
	 	 	 
	 	
              COACH
                CAPITAL, LLC

            
	 	
              (With
                Respect to Section 4 Only)

            
	 	 	 
	 	 	 
	 	
              By: 
                ________________________________

            
	 	
              Name:
                ______________________________

            
	 	
              Title:
                 _______________________________

            


    

    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    
      
        
          
          

        

        
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    EXHIBIT
      I

    


    CONVERSION
      NOTICE

     

    
      	
              To:  nCoat,
                Inc.  (the “Company”)

            	
              Dated:  ____________

            


    

    


    The
      undersigned herewith elects to convert $__________ in principal amount of such
      Debenture, together with any and all accrued and unpaid interest thereon, at
      the
      Conversion Price provided for in such Debenture, which is
      $_________.

    


    By
      signing below, the undersigned hereby warrants and represents that each of
      the
      representations and warranties contained in Section 4 of the Debenture are
      true,
      correct, and accurate as of the date of this Conversion Notice.

    


    Please
      issue a certificate representing said shares of Common Stock in the name of
      the
      undersigned or in such other name as is specified below:

    


     

    
      	
               

            	
              Name
                of Entity:

            	
              ________________________________

            


    

     

    
      	 	
              Signature
                of

            	 


      	
               

            	
              Authorized
                Person:

            	
              ________________________________

            


    

     

    
      	
               

            	
              Address:

            	
              __________________________________________

            


    

     

    
      	
            	
               

            	
              
                ________________________________

              

            


    

     

    
      	
               

            	
              Conversion
                Date:

            	
               ________________________________

            


    

     

    Number
      of Shares of

    Common
      Stock to be Issued:

    


    Amount
      of Debenture

    Unconverted:
      $

    


    Issue
      Shares in the Following Name

    And
      Deliver to the Following

    
      	
               

            	
               
                Address:

            	
              _______________________________________

            


    

     _______________________________________

    
       _______________________________________

    

    
 

     

    Please
      also issue a replacement
      Debenture representing the balance outstanding, if any, upon completion of
      this
      conversion.

     

     

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