EXHIBIT 4.2
                                                                     -----------

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

Original Issue Date: June 8, 2005
Original Conversion Price (subject to adjustment herein): $2.00

                                                                $_______________


              SERIES A VARIABLE RATE SECURED CONVERTIBLE DEBENTURE

         THIS SERIES A VARIABLE RATE SECURED CONVERTIBLE DEBENTURE is one of a
series of duly authorized and issued Series A Variable Rate Secured Convertible
Debentures of Western Power & Equipment Corp., a Delaware Company (the
"Company"), having a principal place of business at 4601 N.E. 77th Avenue,
Vancouver, Washington 98662, designated as its Series A Variable Rate Secured
Convertible Debentures (this debenture, the "Debenture" and collectively with
the other such series of debentures, the "Debentures").

         FOR VALUE RECEIVED, the Company promises to pay to ___________________
or its registered assigns (the "Holder"), or shall have paid pursuant to the
terms hereunder, the principal sum of $_______________, due June 7, 2010 (except
that, upon the Company timely honoring the Holder Optional Redemption pursuant
to Section 6(c) if exercised by the Holder, such date shall be June 7, 2011), or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder (the "Maturity Date"), and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this
Debenture in accordance with the provisions hereof. This Debenture is subject to
the following additional provisions:

         Section 1. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the

                                        1
<PAGE>
meanings given to such terms in the Purchase Agreement, and (b) the following
terms shall have the following meanings:

                  "Alternate Consideration" shall have the meaning set forth in
         Section 5(d).

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

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

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

                  "Change of Control Transaction" means the occurrence after the
         date hereof of any of (i) an acquisition after the date hereof by an
         individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
         promulgated under the Exchange Act) of effective control (whether
         through legal or beneficial ownership of capital stock of the Company,
         by contract or otherwise) of in excess of 40% of the voting securities
         of the Company, or (ii) the Company merges into or consolidates with
         any other Person, or any Person merges into or consolidates with the
         Company and, after giving effect to such transaction, the stockholders
         of the Company immediately prior to such transaction own less than 60%
         of the aggregate voting power of the Company or the successor entity of
         such transaction, or (iii) the Company sells or transfers its assets,
         as an entirety or substantially as an entirety, to another Person and
         the stockholders of the Company immediately prior to such transaction
         own less than 60% of the aggregate voting power of the acquiring entity
         immediately after the transaction, (iv) a replacement at one time or
         within a three year period of more than one-half of the members of the
         Company's board of directors which is not approved by a majority of
         those individuals who are members of the board of directors on the date
         hereof (or by those individuals who are serving as members of the board
         of directors on any date whose nomination to the board of directors was
         approved by a majority of the members of the board of directors who are
         members on the date hereof), or (v) the execution by the Company of an
         agreement to which the Company is a party or by which it is bound,
         providing for any of the events set forth above in (i) or (iv).

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

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

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

                  "Conversion Shares" means the shares of Common Stock issuable
         upon conversion of this Debenture or as payment of interest in
         accordance with the terms.

                                        2
<PAGE>
                  "Debenture Register" shall have the meaning set forth in
         Section 2(c).

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

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

                  "Effectiveness Period" shall have the meaning given to such
         term in the Registration Rights Agreement.

                  "Equity Conditions" shall mean, during the period in question,
         (i) the Company shall have duly honored all conversions and redemptions
         scheduled to occur or occurring by virtue of one or more Notice of
         Conversions of the Holder, if any, (ii) all liquidated damages and
         other amounts owing to the Holder in respect of this Debenture shall
         have been paid; (iii) there is an effective Registration Statement
         pursuant to which the Holder is permitted to utilize the prospectus
         thereunder to resell all of the shares issuable pursuant to the
         Transaction Documents (and the Company believes, in good faith, that
         such effectiveness will continue uninterrupted for the foreseeable
         future), (iv) the Common Stock is trading on the Trading Market and all
         of the shares issuable pursuant to the Transaction Documents are listed
         for trading on a Trading Market (and the Company believes, in good
         faith, that trading of the Common Stock on a Trading Market will
         continue uninterrupted for the foreseeable future), (v) there is a
         sufficient number of authorized but unissued and otherwise unreserved
         shares of Common Stock for the issuance of all of the shares issuable
         pursuant to the Transaction Documents, (vi) there is then existing no
         Event of Default or event which, with the passage of time or the giving
         of notice, would constitute an Event of Default, (vii) the issuance of
         the shares in question (or, in the case of a redemption, the shares
         issuable upon conversion in full of the redemption amount) to the
         Holder would not violate the limitations set forth in Section 4(c) and
         (viii) no public announcement of a pending or proposed Fundamental
         Transaction, Change of Control Transaction or acquisition transaction
         has occurred that has not been consummated.

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

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

                  "Fundamental Transaction" shall have the meaning set forth in
         Section 5(d).

                  "Holder Optional Redemption" shall have the meaning set forth
         in Section 6(a).

                  "Holder Optional Redemption Amount" shall mean the sum of (i)
         100% of the principal amount of this Debenture then outstanding, (ii)
         accrued but unpaid interest thereon and (iii) all liquidated damages
         and other amounts due in respect of this Debenture.

                                        3
<PAGE>
                  "Holder Optional Redemption Notice" shall have the meaning set
         forth in Section 6(a).

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

                  "Interest Conversion Rate" means the lesser of (a) the
         Conversion Price and (b) 90% of the lesser of (i) the arithmetic
         average of the 20 VWAPs immediately prior to the applicable Interest
         Payment Date or (ii) the arithmetic average of the 20 VWAPs immediately
         prior to the date the applicable interest payment shares are issued and
         delivered if after the Interest Payment Date.

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

                  "Interest Period" means, initially, the period beginning on
         and including the Original Issue Date and ending on and including June
         30, 2005 and each successive period as follows: the period beginning on
         and including July 1 and ending on and including September 30; the
         period beginning on and including October 1 and ending on and including
         December 31; the period beginning on and including January 1 and ending
         on and including March 31; and the period beginning on and including
         April 1 and ending on and including June 30.

                  "Inventory Floor Plan Financing Agreement" means that certain
         Wholesale Financing and Security Agreement, dated November 17, 1992,
         between the Company, Case Corporation, and Case Credit Corporation, as
         amended prior to the Original Issue Date, granting Case Corporation and
         Case Credit Corporation a security interest on inventory purchased by
         the Company for resale from Case Corporation.

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

                  "LIBOR" means, for each Interest Period (i) the six-month
         London Interbank Offered Rate for deposits in U.S. dollars, as shown on
         such the Trading Day immediately prior to the beginning of such
         Interest Period in The Wall Street Journal (Eastern Edition) under the
         caption "Money Rates - London Interbank Offered Rates (LIBOR)"; or (ii)
         if The Wall Street Journal does not publish such rate, the offered
         one-month rate for deposits in U.S. dollars which appears on the
         Reuters Screen LIBO Page as of 10:00 a.m., New York time, the Trading
         Day immediately prior to the beginning of such Interest Period,
         provided that if at least two rates appear on the Reuters Screen LIBO
         Page on any such Trading Day, the "LIBOR" for such day shall be the
         arithmetic mean of such rates.

                  "Mandatory Default Amount" shall equal the sum of (i) the
         greater of: (A) 120% of the principal amount of this Debenture to be
         prepaid, plus all accrued and unpaid interest thereon, or (B) the
         principal amount of this Debenture to be prepaid, plus all other
         accrued and unpaid interest hereon, divided by the Conversion Price on
         (x) the date the Mandatory Default Amount is demanded or otherwise due
         or (y) the date the Mandatory Default Amount is paid in full, whichever
         is less, multiplied by the VWAP on

                                        4
<PAGE>
         (x) the date the Mandatory Default Amount is demanded or otherwise due
         or (y) the date the Mandatory Default Amount is paid in full, whichever
         is greater, and (ii) all other amounts, costs, expenses and liquidated
         damages due in respect of this Debenture.

                  "Monthly Conversion Price" shall have the meaning set forth in
         Section 6(b) hereof.

                  "Monthly Redemption" shall mean the redemption of this
         Debenture pursuant to Section 6(b) hereof.

                  "Monthly Redemption Amount" shall mean $_____________(1);
         provided, however, upon the Company timely honoring a Holder Optional
         Redemption pursuant to Section 6(c), if exercised by the Holder, the
         Monthly Redemption Amount thereafter shall be equal to the outstanding
         principal amount of this Debenture at the time such Holder Optional
         Redemption is honored divided by the number of months (based on the 1st
         of the month) remaining until June 7, 2011.

                  "Monthly Redemption Date" means the 1st of each month,
         commencing on the 7th month after the Original Issue Date and ending
         upon the full redemption of this Debenture.

                  "Monthly Redemption Period" shall have the meaning set forth
         in Section 6(b) hereof.

                  "Monthly Redemption Share Amount" shall have the meaning set
         forth in Section 6(b) hereof.

                  "New York Courts" shall have the meaning set forth in Section
         9(d).

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

                  "Original Issue Date" shall mean the date of the first
         issuance of the Debentures regardless of the number of transfers of any
         Debenture and regardless of the number of instruments which may be
         issued to evidence such Debenture.

                  "Permitted Indebtedness" shall mean the individual and
         collective reference to the following: (a) Indebtedness incurred
         pursuant to the Series A Debentures and the Series B Debentures, (b)
         Existing Indebtedness as it exists on the date of the Purchase
         Agreement but excluding any Existing Indebtedness paid off at the
         Closing, including the GE Facility and the APM Purchase Note, (c)
         additional Indebtedness to Case Corporation pursuant to the Inventory
         Floor Plan Financing Agreement, (d) additional Indebtedness incurred in
         connection with the acquisition of capital assets and obligations under
         sale-leaseback arrangements with respect to newly acquired or leased
         assets to Persons, other than Case Corporation, up to, in the aggregate
         at any one time outstanding, and together
__________________
(1)      1/54th of the original principal amount of this Debenture.

                                        5
<PAGE>
         with any then outstanding Existing Indebtedness, a maximum of
         $3,200,000 from the Original Issue Date until the 18 month anniversary
         of the Original Issue Date (with no such obligation (other than
         Existing Indebtedness as it exists on the date of the Purchase
         Agreement but excluding any Existing Indebtedness paid off at the
         Closing, including the GE Facility) individually exceeding $100,000);
         provided such aggregate maximum aggregate (subject still to the
         $100,000 individual maximum amount) shall increase to $4,100,000 during
         the period following such 18 month anniversary to the 30 month
         anniversary of the Original Issue Date and to $5,000,000 after the 30
         month anniversary of the Original Issue Date until this Debenture is no
         longer outstanding and (e) Indebtedness incurred by the Company that
         does not mature or require payments of principal prior to the four year
         anniversary of the Original Issue Date and is made expressly
         subordinate in right of payment to the Indebtedness evidenced by this
         Debenture, as reflected in a written agreement acceptable to the Holder
         and approved by the Holder in writing.

                  "Permitted Lien" shall mean the individual and collective
         reference to the following: (a) Liens for taxes, assessments and other
         governmental charges or levies not yet due or Liens for taxes,
         assessments and other governmental charges or levies being contested in
         good faith and by appropriate proceedings for which adequate reserves
         (in the good faith judgment of the management of the Company) have been
         established in accordance with GAAP; (b) any Liens incurred in
         connection with Permitted Indebtedness under clause (d) in the
         definition of Permitted Indebtedness above, provided that such liens
         are not secured by assets of the Company or its Subsidiaries other than
         the assets so acquired or leased; (c) Liens imposed by law which were
         incurred in the ordinary course of business, such as carriers',
         warehousemen's and mechanics' Liens, statutory landlords' Liens, and
         other similar Liens arising in the ordinary course of business, and (x)
         which do not individually or in the aggregate materially detract from
         the value of such property or assets or materially impair the use
         thereof in the operation of the business of the Company and its
         consolidated Subsidiaries or (y) which are being contested in good
         faith by appropriate proceedings, which proceedings have the effect of
         preventing the forfeiture or sale of the property or asset subject to
         such Lien; (d) Liens created in favor of the Purchasers pursuant to the
         Security Documents and (e) Existing Liens as they exist on the date of
         the Purchase Agreement, but excluding any Existing Liens on Existing
         Indebtedness paid off at the Closing, including Liens on the GE
         Facility.

                  "Person" means a corporation, an association, a partnership,
         organization, a business, an individual, a government or political
         subdivision thereof or a governmental agency.

                  "Pre-Redemption Conversion Shares" shall have the meaning set
         forth in Section 6(b) hereof.

                  "Purchase Agreement" means the Securities Purchase Agreement,
         dated as of June 8, 2005, to which the Company and the original Holder
         are parties, as amended, modified or supplemented from time to time in
         accordance with its terms.

                                        6
<PAGE>
                  "Registration Rights Agreement" means the Registration Rights
         Agreement, dated as of the date of the Purchase Agreement, to which the
         Company and the original Holder are parties, as amended, modified or
         supplemented from time to time in accordance with its terms.

                  "Registration Statement" means a registration statement
         meeting the requirements set forth in the Registration Rights
         Agreement, covering among other things the resale of the Conversion
         Shares and naming the Holder as a "selling stockholder" thereunder.

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

                  "Subsidiary" shall have the meaning given to such term in the
         Purchase Agreement.

                  "Trading Day" means a day on which the Common Stock is traded
         on a Trading Market.

                  "Trading Market" means the following markets or exchanges on
         which the Common Stock is listed or quoted for trading on the date in
         question: the Nasdaq SmallCap Market, the American Stock Exchange, the
         New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
         Board.

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

                  "VWAP" means, for any date, the price determined by the first
         of the following clauses that applies: (a) if the Common Stock is then
         listed or quoted on a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the primary Trading Market on which the Common Stock is then listed
         or quoted as reported by Bloomberg Financial L.P. (based on a Trading
         Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
         function; (b) if the Common Stock is not then listed or quoted on the
         Trading Market and if prices for the Common Stock are then reported in
         the "Pink Sheets" published by the Pink Sheets, LLC (or a similar
         organization or agency succeeding to its functions of reporting
         prices), the most recent bid price per share of the Common Stock so
         reported; or (c) in all other cases, the fair market value of a share
         of Common Stock as determined by a nationally recognized-independent
         appraiser selected in good faith by Purchasers holding a majority of
         the principal amount of Debentures then outstanding.

         Section 2.      Interest.
         ---------       --------

                  a)     Payment of Interest in Cash or Kind. The Company shall
         pay interest to the Holder on the aggregate unconverted and then
         outstanding principal amount of this Debenture at the rate per annum
         equal to LIBOR for the applicable Interest Period plus

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<PAGE>
         6.0% or such lesser rate as shall be the highest rate permitted by
         applicable law (the "Debenture Interest Rate"), payable quarterly on
         April 1, July 1, October 1 and January 1, beginning on the first such
         date after the Original Issue Date, on each Monthly Redemption Date (as
         to that principal amount then being redeemed), on each Conversion Date
         (as to that principal amount then being converted), on each Holder
         Optional Redemption Date (as to that principal amount being redeemed)
         and on the Maturity Date (except that, if any such date is not a
         Business Day, then such payment shall be due on the next succeeding
         Business Day) (each such date, an "Interest Payment Date"), in cash or
         shares of Common Stock at the Interest Conversion Rate, or a
         combination thereof (the amount to be paid in shares, the "Interest
         Share Amount"); provided, however, (i) payment in shares of Common
         Stock may only occur if during the 20 Trading Days immediately prior to
         the applicable Interest Payment Date ("Interest Notice Period") and
         through and including the date such shares of Common Stock are issued
         to the Holder all of the Equity Conditions, unless waived by the Holder
         in writing, have been met and the Company shall have given the Holder
         notice in accordance with the notice requirements set forth below and
         (ii) as to such Interest Payment Date, prior to the such Interest
         Notice Period (but not more 5 Trading Days prior to the commencement of
         the Interest Notice Period), the Company shall have delivered to the
         Holder's account with The Depository Trust Company a number of shares
         of Common Stock to be applied against such Interest Share Amount equal
         to the quotient of (x) the applicable Interest Share Amount divided by
         (y) the then Conversion Price (the "Interest Conversion Shares").
         Notwithstanding anything herein to the contrary, immediately after the
         Company has redeemed, pursuant to a Holder Optional Redemption as
         defined in Section 6(a) or a Monthly Redemption as set forth in Section
         6(b), a principal amount of outstanding Debentures in one or more
         redemptions, in the aggregate, equal to (i) greater than $10,000,000,
         the Debenture Interest Rate shall be reduced to equal LIBOR for the
         applicable Interest Period plus 5.25% and (ii) greater than
         $20,000,000, the Debenture Interest Rate shall be reduced to equal
         LIBOR for the applicable Interest Period plus 4.0%.

                  b)     Company's Election to Pay Interest in Kind. Subject to
         the terms and conditions herein, the decision whether to pay interest
         hereunder in shares of Common Stock or cash shall be at the discretion
         of the Company. Prior to the commencement of an Interest Notice Period,
         the Company shall provide the Holder with written notice of its
         election to pay interest hereunder on the applicable Interest Payment
         Date either in cash, shares of Common Stock or a combination thereof
         (the Company may indicate in such notice that the election contained in
         such notice shall continue for later periods until revised) and the
         Interest Share Amount as to the applicable Interest Payment Date.
         During any Interest Notice Period, the Company's election (whether
         specific to an Interest Payment Date or continuous) shall be
         irrevocable as to such Interest Payment Date. Subject to the
         aforementioned conditions, failure to timely provide such written
         notice shall be deemed an election by the Company to pay the interest
         on such Interest Payment Date in cash. The aggregate number of shares
         of Common Stock otherwise issuable to the Holder on an Interest Payment
         Date shall be reduced by the number of Interest Conversion Shares
         previously issued to the Holder in connection with such Interest
         Payment Date.

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

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

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

         Section 3.      Registration of Transfers and Exchanges.
         ----------      ----------------------------------------

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

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

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

         Section 4.      Conversion.
         ----------      ----------

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

                  b)     Conversion Price. The conversion price in effect on any
         Conversion Date shall be equal to $2.00 (subject to adjustment
         herein)(the "Conversion Price").

                  c)     Holder's Restriction on Conversion. The Company shall
         not effect any conversion of this Debenture, and the Holder shall not
         have the right to convert any portion of this Debenture, pursuant to
         Section 4(a) or otherwise, to the extent that after giving effect to
         such conversion, the Holder (together with the Holder's affiliates), as
         set forth on the applicable Notice of Conversion, would beneficially
         own in excess of 4.99%

                                       10
<PAGE>
         of the number of shares of the Common Stock outstanding immediately
         after giving effect to such conversion. For purposes of the foregoing
         sentence, the number of shares of Common Stock beneficially owned by
         the Holder and its affiliates shall include the number of shares of
         Common Stock issuable upon conversion of this Debenture with respect to
         which the determination of such sentence is being made, but shall
         exclude the number of shares of Common Stock which would be issuable
         upon (A) conversion of the remaining, nonconverted portion of this
         Debenture beneficially owned by the Holder or any of its affiliates and
         (B) exercise or conversion of the unexercised or nonconverted portion
         of any other securities of the Company (including, without limitation,
         any other Debentures or the Warrants) subject to a limitation on
         conversion or exercise analogous to the limitation contained herein
         beneficially owned by the Holder or any of its affiliates. Except as
         set forth in the preceding sentence, for purposes of this Section 4(c),
         beneficial ownership shall be calculated in accordance with Section
         13(d) of the Exchange Act. To the extent that the limitation contained
         in this section applies, the determination of whether this Debenture is
         convertible (in relation to other securities owned by the Holder) and
         of which a portion of this Debenture is convertible shall be in the
         sole discretion of such Holder, absent manifest error by the Holder. To
         ensure compliance with this restriction, the Holder will be deemed to
         represent to the Company each time it delivers a Notice of Conversion
         that such Notice of Conversion has not violated the restrictions set
         forth in this paragraph and the Company shall have no obligation to
         verify or confirm the accuracy of such determination. For purposes of
         this Section 4(c), in determining the number of outstanding shares of
         Common Stock, the Holder may rely on the number of outstanding shares
         of Common Stock as reflected in (x) the Company's most recent Form 10-Q
         or Form 10-K, as the case may be, (y) a more recent public announcement
         by the Company or (z) any other notice by the Company or the Company's
         Transfer Agent setting forth the number of shares of Common Stock
         outstanding. Upon the written or oral request of the Holder, the
         Company shall within two Trading Days confirm orally and in writing to
         the Holder the number of shares of Common Stock then outstanding. In
         any case, the number of outstanding shares of Common Stock shall be
         determined after giving effect to the conversion or exercise of
         securities of the Company, including this Debenture, by the Holder or
         its affiliates since the date as of which such number of outstanding
         shares of Common Stock was reported. The provisions of this Section
         4(c) may be waived by the Holder, at the election of the Holder, upon
         not less than 61 days' prior notice to the Company, and the provisions
         of this Section 4(c) shall continue to apply until such 61st day (or
         such later date, as determined by the Holder, as may be specified in
         such notice of waiver).

                  d)     Mechanics of Conversion

                         i. Conversion Shares Issuable Upon Conversion of
         Principal Amount. The number of shares of Common Stock issuable upon a
         conversion hereunder shall be determined by the quotient obtained by
         dividing (x) the outstanding principal amount of this Debenture to be
         converted by (y) the Conversion Price.

                                       11
<PAGE>
                         ii. Delivery of Certificate Upon Conversion. Not later
         than three Trading Days after any Conversion Date, the Company will
         deliver or cause to be delivered to the Holder (A) a certificate or
         certificates representing the Conversion Shares which shall be free of
         restrictive legends and trading restrictions (other than those required
         by the Purchase Agreement) representing the number of shares of Common
         Stock being acquired upon the conversion of this Debenture (including,
         if the Company has given continuous notice pursuant to Section 2(b) for
         payment of interest in shares of Common Stock at least 20 Trading Days
         prior to the date on which the Conversion Notice is delivered to the
         Company, shares of Common Stock representing the payment of accrued
         interest otherwise determined pursuant to Section 2(a) but assuming
         that the Interest Payment Period is the 20 Trading Days period
         immediately prior to the date on which the Conversion Notice is
         delivered to the Company and excluding for such issuance the condition
         that the Company deliver Interest Conversion Shares as to such interest
         payment) and (B) a bank check in the amount of accrued and unpaid
         interest (if the Company is required to pay accrued interest in cash).
         The Company shall, if available and if allowed under applicable
         securities laws, use its best efforts to deliver any certificate or
         certificates required to be delivered by the Company under this Section
         electronically through the Depository Trust Corporation or another
         established clearing corporation performing similar functions.

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

                         iv. Obligation Absolute; Partial Liquidated Damages. If
         the Company fails for any reason to deliver to the Holder such
         certificate or certificates pursuant to Section 4(d)(ii) by the fifth
         Trading Day after the Conversion Date, the Company shall pay to such
         Holder, in cash, as liquidated damages and not as a penalty, for each
         $1000 of principal amount being converted, $10 per Trading Day
         (increasing to $20 per Trading Day after 5 Trading Days after such
         damages begin to accrue) for each Trading Day after such fifth Trading
         Day until such certificates are delivered. The Company's obligations to
         issue and deliver the Conversion Shares upon conversion of this
         Debenture in accordance with the terms hereof are absolute and
         unconditional, irrespective of any action or inaction by the Holder to
         enforce the same, any waiver or consent with respect to any provision
         hereof, the recovery of any judgment against any Person or any action
         to enforce the same, or any setoff, counterclaim, recoupment,
         limitation or termination, or any breach or alleged breach by the
         Holder or any other Person of any obligation to the Company or any
         violation or alleged violation of law by the

                                       12
<PAGE>
         Holder or any other person, and irrespective of any other circumstance
         which might otherwise limit such obligation of the Company to the
         Holder in connection with the issuance of such Conversion Shares;
         provided, however, such delivery shall not operate as a waiver by the
         Company of any such action the Company may have against the Holder. In
         the event a Holder of this Debenture shall elect to convert any or all
         of the outstanding principal amount hereof, the Company may not refuse
         conversion based on any claim that the Holder or any one associated or
         affiliated with the Holder has been engaged in any violation of law,
         agreement or for any other reason, unless, an injunction from a court,
         on notice, restraining and or enjoining conversion of all or part of
         this Debenture shall have been sought and obtained and the Company
         posts a surety bond for the benefit of the Holder in the amount of 150%
         of the principal amount of this Debenture outstanding, which is subject
         to the injunction, which bond shall remain in effect until the
         completion of arbitration/litigation of the dispute and the proceeds of
         which shall be payable to such Holder to the extent it obtains
         judgment. In the absence of an injunction precluding the same, the
         Company shall issue Conversion Shares or, if applicable, cash, upon a
         properly noticed conversion. Nothing herein shall limit the Holder's
         right to pursue actual damages or declare an Event of Default pursuant
         to Section 8 herein for the Company's failure to deliver Conversion
         Shares within the period specified herein and such Holder shall have
         the right to pursue all remedies available to it at law or in equity
         including, without limitation, a decree of specific performance and/or
         injunctive relief. The exercise of any such rights shall not prohibit
         the Holder from seeking to enforce damages pursuant to any other
         Section hereof or under applicable law.

                         v. Compensation for Buy-In on Failure to Timely Deliver
         Certificates Upon Conversion. In addition to any other rights available
         to the Holder, if the Company fails for any reason to deliver to the
         Holder such certificate or certificates pursuant to Section 4(d)(ii) by
         the fifth Trading Day after the Conversion Date, and if after such
         fifth Trading Day the Holder is required by its brokerage firm to
         purchase (in an open market transaction or otherwise) Common Stock to
         deliver in satisfaction of a sale by such Holder of the Conversion
         Shares which the Holder anticipated receiving upon such conversion (a
         "Buy-In"), then the Company shall (A) pay in cash to the Holder (in
         addition to any remedies available to or elected by the Holder) the
         amount by which (x) the Holder's total purchase price (including
         brokerage commissions, if any) for the Common Stock so purchased
         exceeds (y) the product of (1) the aggregate number of shares of Common
         Stock that such Holder anticipated receiving from the conversion at
         issue multiplied by (2) the actual sale price of the Common Stock at
         the time of the sale (including brokerage commissions, if any) giving
         rise to such purchase obligation and (B) at the option of the Holder,
         either reissue (if surrendered) this Debenture in a principal amount
         equal to the principal amount of the attempted conversion or deliver to
         the Holder the number of shares of Common Stock that would have been
         issued had the Company timely complied with its delivery requirements
         under Section 4(d)(ii). For example, if the Holder purchases

                                       13
<PAGE>
         Common Stock having a total purchase price of $11,000 to cover a Buy-In
         with respect to an attempted conversion of this Debenture with respect
         to which the actual sale price of the Conversion Shares at the time of
         the sale (including brokerage commissions, if any) giving rise to such
         purchase obligation was a total of $10,000 under clause (A) of the
         immediately preceding sentence, the Company shall be required to pay
         the Holder $1,000. The Holder shall provide the Company written notice
         indicating the amounts payable to the Holder in respect of the Buy-In.
         Notwithstanding anything contained herein to the contrary, if a Holder
         requires the Company to make payment in respect of a Buy-In for the
         failure to timely deliver certificates hereunder and the Company timely
         pays in full such payment, the Company shall not be required to pay
         such Holder liquidated damages under Section 4(d)(iv) in respect of the
         certificates resulting in such Buy-In.

                         vi. Reservation of Shares Issuable Upon Conversion. The
         Company covenants that it will at all times reserve and keep available
         out of its authorized and unissued shares of Common Stock solely for
         the purpose of issuance upon conversion of this Debenture and payment
         of interest on this Debenture, each as herein provided, free from
         preemptive rights or any other actual contingent purchase rights of
         persons other than the Holder (and the other holders of the
         Debentures), not less than such number of shares of the Common Stock as
         shall (subject to the terms and conditions set forth in the Purchase
         Agreement, with particular reference to Section 4.12(b) thereof) be
         issuable (taking into account the adjustments and restrictions of
         Section 5) upon the conversion of the outstanding principal amount of
         this Debenture and payment of interest hereunder. The Company covenants
         that all shares of Common Stock that shall be so issuable shall, upon
         issue, be duly and validly authorized, issued and fully paid,
         nonassessable and, if the Registration Statement is then effective
         under the Securities Act, registered for public sale in accordance with
         such Registration Statement.

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

                         viii. Transfer Taxes. The issuance of certificates for
         shares of the Common Stock on conversion of this Debenture shall be
         made without charge to the Holder hereof for any documentary stamp or
         similar taxes that may be payable in respect of the issue 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

                                       14
<PAGE>
         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.

         Section 5.      Certain Adjustments.
         ----------      --------------------

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

                  b)     Subsequent Equity Sales. If the Company or any
         Subsidiary of the Company thereof, as applicable, at any time while
         this Debenture is outstanding, shall offer, sell, grant any option to
         purchase or offer, sell or grant any right to reprice its securities,
         or otherwise dispose of or issue (or announce any offer, sale, grant or
         any option to purchase or other disposition) any Common Stock or Common
         Stock Equivalents entitling any Person to acquire shares of Common
         Stock, at an effective price per share less than the then Conversion
         Price (such lower price, the "Base Conversion Price" and such issuances
         collectively, a "Dilutive Issuance"), as adjusted hereunder (if the
         holder of the Common Stock or Common Stock Equivalents so issued shall
         at any time, whether by operation of purchase price adjustments, reset
         provisions, floating conversion, exercise or exchange prices or
         otherwise, or due to warrants, options or rights per share which is
         issued in connection with such issuance, be entitled to receive shares
         of Common Stock at an effective price per share which is less than the
         Conversion Price, such issuance shall be deemed to have occurred for
         less than the Conversion Price on such date of the Dilutive Issuance),
         then (i) if the Dilutive Issuance occurred on or prior to the 18 month
         anniversary of the Original Issue Date, the Conversion Price shall be
         reduced to equal the Base Conversion Price, (ii) if the Dilutive
         Issuance occurred after the 18 month anniversary of the Original Issue
         Date and on or prior to the 24 month anniversary of the Original Issue
         Date, the Conversion Price as to 75% of the principal amount of this
         Debenture then outstanding shall be reduced to equal the Base
         Conversion

                                       15
<PAGE>
         Price, (iii) if the Dilutive Issuance occurred after the 24 month
         anniversary of the Original Issue Date and on or prior to the 30 month
         anniversary of the Original Issue Date, the Conversion Price as to 50%
         of the principal amount of this Debenture then outstanding shall be
         reduced to equal the Base Conversion Price and (iv) if the Dilutive
         Issuance occurred after the 30 month anniversary of the Original Issue
         Date, the Conversion Price as to 25% of the principal amount of this
         Debenture then outstanding shall be reduced to equal the Base
         Conversion Price. Such adjustment shall be made whenever such Common
         Stock or Common Stock Equivalents are issued and, for purposes of
         calculating any such adjustments, any resets, amendments or other
         adjustments to the securities issued in a Dilutive Issuance resulting
         in a reduction of the Base Conversion Price and occurring subsequent to
         the Dilutive Issuance shall be deemed to have occurred on the date of
         the Dilutive Issuance. In the event portions of the principal amount of
         this Debenture have different Conversion Prices as a result of this
         Section 5(b), the Holder, in its sole discretion, shall determine which
         portions of this Debenture and their respective Conversion Prices are
         subject to any Notices of Conversions or redemptions hereunder.
         Notwithstanding the foregoing, no adjustment will be made under this
         Section 5(b) in respect of an Exempt Issuance. The Company shall notify
         the Holder in writing, no later than the Business Day following the
         issuance of any Common Stock or Common Stock Equivalents subject to
         this section, indicating therein the applicable issuance price, or of
         applicable reset price, exchange price, conversion price and other
         pricing terms (such notice the "Dilutive Issuance Notice"). For
         purposes of clarification, whether or not the Company provides a
         Dilutive Issuance Notice pursuant to this Section 5(b), upon the
         occurrence of any Dilutive Issuance, after the date of such Dilutive
         Issuance the Holder is entitled to receive a number of Conversion
         Shares based upon the Base Conversion Price regardless of whether the
         Holder accurately refers to the Base Conversion Price in the Notice of
         Conversion.

                  c)     Pro Rata Distributions. If the Company, at any time
         while this Debenture is outstanding, shall distribute to all holders of
         Common Stock (and not to holders of the Debentures) evidences of its
         indebtedness or assets (including cash and cash dividends) or rights or
         warrants to subscribe for or purchase any security, then in each such
         case the Conversion Price shall be adjusted by multiplying such
         Conversion Price in effect immediately prior to the record date fixed
         for determination of stockholders entitled to receive such distribution
         by a fraction of which the denominator shall be the VWAP determined as
         of the record date mentioned above, and of which the numerator shall be
         such VWAP on such record date less the then fair market value at such
         record date of the portion of such assets or evidence of indebtedness
         so distributed applicable to one outstanding share of the Common Stock
         as determined by the Board of Directors in good faith. In either case
         the adjustments shall be described in a statement provided to the
         Holder of the portion of assets or evidences of indebtedness so
         distributed or such subscription rights applicable to one share of
         Common Stock. Such adjustment shall be made whenever any such
         distribution is made and shall become effective immediately after the
         record date mentioned above.

                                       16
<PAGE>
                  d)     Fundamental Transaction. If, at any time while this
         Debenture is outstanding, (A) the Company effects any merger or
         consolidation of the Company with or into another Person, (B) the
         Company effects any sale of all or substantially all of its assets in
         one or a series of related transactions, (C) any tender offer or
         exchange offer (whether by the Company or another Person) is completed
         pursuant to which holders of Common Stock are permitted to tender or
         exchange their shares for other securities, cash or property, or (D)
         the Company effects any reclassification of the Common Stock or any
         compulsory share exchange pursuant to which the Common Stock is
         effectively converted into or exchanged for other securities, cash or
         property (in any such case, a "Fundamental Transaction"), then upon any
         subsequent conversion of this Debenture, the Holder shall have the
         right to receive, for each Conversion Share that would have been
         issuable upon such conversion immediately prior to the occurrence of
         such Fundamental Transaction, the same kind and amount of securities,
         cash or property as it would have been entitled to receive upon the
         occurrence of such Fundamental Transaction if it had been, immediately
         prior to such Fundamental Transaction, the holder of one share of
         Common Stock (the "Alternate Consideration"). For purposes of any such
         conversion, the determination of the Conversion Price shall be
         appropriately adjusted to apply to such Alternate Consideration based
         on the amount of Alternate Consideration issuable in respect of one
         share of Common Stock in such Fundamental Transaction, and the Company
         shall apportion the Conversion Price among the Alternate Consideration
         in a reasonable manner reflecting the relative value of any different
         components of the Alternate Consideration. If holders of Common Stock
         are given any choice as to the securities, cash or property to be
         received in a Fundamental Transaction, then the Holder shall be given
         the same choice as to the Alternate Consideration it receives upon any
         conversion of this Debenture following such Fundamental Transaction. To
         the extent necessary to effectuate the foregoing provisions, any
         successor to the Company or surviving entity in such Fundamental
         Transaction shall (i) assume in writing all of the obligations of the
         Company under this Debenture and the other Transaction Documents
         pursuant to written agreements in form and substance satisfactory to
         the Holder (such approval not to be unreasonably withheld or delayed)
         prior to such Fundamental Transaction and (ii) to issue to the Holder a
         new debenture of such successor entity evidenced by a written
         instrument substantially similar in form and substance to this
         Debenture, including, without limitation, having a principal amount and
         interest rate equal to the principal amounts and the interest rates of
         this Debenture and having similar ranking to this Debenture, and
         satisfactory to the Holder (any such approval not to be unreasonably
         withheld or delayed). The provisions of this Section shall apply
         similarly and equally to successive Fundamental Transactions and shall
         be applied without regard to any limitations on the conversion or
         redemption of this Debenture.

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

                                       17
<PAGE>
                  f)     Notice to the Holder.

                         i.   Adjustment to Conversion Price. Whenever the
         Conversion Price is adjusted pursuant to any of this Section 5, the
         Company shall promptly mail to each Holder a notice setting forth the
         Conversion Price after such adjustment and setting forth a brief
         statement of the facts requiring such adjustment. If the Company issues
         a variable rate security, despite the prohibition thereon in the
         Purchase Agreement, the Company shall be deemed to have issued Common
         Stock or Common Stock Equivalents at the lowest possible conversion or
         exercise price at which such securities may be converted or exercised
         in the case of a Variable Rate Transaction (as defined in the Purchase
         Agreement).

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

         Section 6.      Optional Redemption and Monthly Redemption.
         ----------      -------------------------------------------

                                       18
<PAGE>
                  a)     Optional Redemption at Election of Holder. Subject to
         the provisions of this Section 6, at any time after the 36-month
         anniversary of the Original Issue Date, the Holder may deliver a notice
         to the Company (a "Holder Optional Redemption Notice" and the date such
         notice is deemed delivered hereunder, the "Holder Optional Redemption
         Notice Date") of its election to require the Company to redeem up to
         50% of the then outstanding principal amount of this Debenture, for an
         amount, in cash, equal to the Holder Optional Redemption Amount (such
         redemption, the "Holder Optional Redemption"). The Holder Optional
         Redemption Amount is due in full on the 5th Trading Day immediately
         following the Holder Optional Redemption Notice Date (the "Holder
         Optional Redemption Date").

                  b)     Monthly Redemption. On each Monthly Redemption Date,
         the Company shall redeem the Monthly Redemption Amount plus accrued but
         unpaid interest, the sum of all liquidated damages and any other
         amounts then owing to such Holder in respect of this Debenture. The
         Monthly Redemption Amount due on each Monthly Redemption Date shall be
         paid in cash; provided, however, as to any Monthly Redemption and upon
         25 Trading Days' prior written irrevocable notice ("Monthly Redemption
         Notice"), in lieu of a cash redemption payment the Company may elect to
         pay up to 50% of the Monthly Redemption Amount in Conversion Shares
         (such dollar amount to be paid on a Monthly Redemption Date in
         Conversion Shares, the "Monthly Redemption Share Amount") based on a
         conversion price equal to the lesser of (i) the then Conversion Price
         and (ii) 90% of the average of the 20 VWAPs during the 20 consecutive
         Trading Days immediately prior to the applicable Monthly Redemption
         Date (subject to adjustment for any stock dividend, stock split, stock
         combination or other similar event affecting the Common Stock during
         such 20 Trading Day period, such period, the "Monthly Redemption
         Period" and such price, the "Monthly Conversion Price"); provided,
         further, that the Company may not pay up to 50% of such Monthly
         Redemption Amount in Conversion Shares unless (i) from the date the
         Holder receives the Monthly Redemption Notice through and until the
         date such Monthly Redemption is paid in full, the Equity Conditions,
         unless waived in writing by the Holder, have been satisfied, (ii) the
         daily trading volume for the Common Stock exceeds $100,000 per Trading
         Day for the applicable Monthly Redemption Period and (iii) as to such
         Monthly Redemption, prior to such Monthly Redemption Period (but not
         more 5 Trading Days prior to the commencement of the Monthly Redemption
         Period), the Company shall have delivered to the Holder's account with
         The Depository Trust Company a number of shares of Common Stock to be
         applied against such Monthly Redemption Share Amount equal to the
         quotient of (x) the applicable Monthly Redemption Share Amount divided
         by (y) the then Conversion Price (the "Pre-Redemption Conversion
         Shares"). The Holder may convert, pursuant to Section 4(a), any
         principal amount of this Debenture subject to a Monthly Redemption at
         any time prior to the date that the Monthly Redemption Amount and all
         amounts owing thereon are due and paid in full. Unless otherwise
         indicated by the Holder in the applicable Notice of Conversion, any
         principal amount of this Debenture converted during the applicable
         Monthly Redemption Period until the date the Monthly Redemption Amount
         is paid in full shall be first applied to the principal amount

                                       19
<PAGE>
         subject to the Monthly Redemption Amount payable in cash and then to
         the Monthly Redemption Share Amount. Any principal amount of this
         Debenture converted during the applicable Monthly Redemption Period in
         excess of the Monthly Redemption Amount shall be applied against the
         last principal amount of this Debenture scheduled to be redeemed
         hereunder, in reverse time order from the Maturity Date; provided,
         however, if any such conversion is applied to such Monthly Redemption
         Amount, the Pre-Redemption Conversion Shares, if any were issued in
         connection with such Monthly Redemption or were not already applied to
         such conversions, shall be first applied against such conversion. The
         Company covenants and agrees that it will honor all Notice of
         Conversions tendered up until such amounts are paid in full. The
         Company's determination to pay a Monthly Redemption in cash, shares of
         Common Stock or a combination thereof shall be applied ratably to all
         holders of the Debentures based on their (or their predecessor's)
         initial purchases of Debentures pursuant to the Purchase Agreement.
         Within 1 Trading Day of the Company notifying the Holder of its
         election to issue the Holder Conversion Shares in lieu of a cash
         redemption payment hereunder, the Company shall file with the
         Commission a prospectus supplement to the Registration Statement
         pursuant to Rule 424 under the Securities Act disclosing the material
         terms of the Company's election make such payments in shares.

                  c)     Redemption Procedure. The payment of cash and/or
         issuance of Common Stock (other than the Pre-Redemption Conversion
         Shares), as the case may be, pursuant to a Monthly Redemption or the
         payment of cash pursuant to a Holder Optional Redemption shall be made
         on the Monthly Redemption Date or the Holder Optional Redemption Date,
         as applicable. The aggregate number of Conversion Shares otherwise
         issuable to the Holder pursuant to a Monthly Redemption on a Monthly
         Redemption Date shall be reduced by the number of Pre-Redemption
         Conversion Shares issued to the Holder in connection with such Monthly
         Redemption (adjusted appropriately for any such shares applied to
         conversion during the Monthly Redemption Period). If any portion of the
         cash payment and/or issuance of Common Stock, as the case may be, for a
         Monthly Redemption or the payment of cash pursuant to a Holder Optional
         Redemption, as applicable, shall not be paid by the Company by the
         respective due date, interest shall accrue thereon at the rate of 18%
         per annum (or the maximum rate permitted by applicable law, whichever
         is less) until the payment of the Monthly Redemption Amount, or the
         Holder Optional Redemption Amount, as applicable, plus all amounts
         owing thereon is paid in full. Alternatively, if any portion of the
         Monthly Redemption Amount or the Holder Optional Redemption Amount, as
         applicable, remains unpaid after such date, the Holder may elect, by
         written notice to the Company given at any time thereafter, to
         invalidate ab initio such redemption, notwithstanding anything herein
         contained to the contrary, and the Holder's right to exercise a Holder
         Optional Redemption in the future shall be restored. The Holder may
         elect to convert the outstanding principal amount of this Debenture
         pursuant to Section 4 prior to actual payment in cash for any
         redemption under this Section 6 by fax delivery of a Notice of
         Conversion to the Company. If any Pre-Redemption Conversion Shares are
         issued to the Holder in connection with a Monthly Redemption and are
         not applied against either the Monthly Redemption Amount

                                       20
<PAGE>
         or against optional conversions during the Monthly Redemption Period,
         then the Holder shall promptly return such excess shares to the
         Company.

         Section 7.      Negative Covenants. So long as any portion of this
Debenture is outstanding, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:

                  a)     except in connection with Permitted Indebtedness, enter
         into, create, incur, assume, guarantee or suffer to exist any
         Indebtedness;

                  b)     except in connection with Permitted Liens, enter into,
         create, incur, assume or suffer to exist any Lien;

                  c)     amend its certificate of incorporation, bylaws or other
         charter documents so as to materially and adversely affect any rights
         of the Holder;

                  d)     repay, repurchase or offer to repay, repurchase or
         otherwise acquire more than a de minimis number of shares of its Common
         Stock or Common Stock Equivalents other than as to the Conversion
         Shares to the extent permitted or required under the Transaction
         Documents or as otherwise permitted by the Transaction Documents;

                  e)     enter into any agreement with respect to any of the
         foregoing; or

                  f)     pay cash dividends or distributions on any equity
         securities of the Company.

         Section 8.      Events of Default.
         ---------       -----------------

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

                         i.   any default in the payment of (A) the principal
         amount of any Debenture, or (B) interest (including Late Fees) on, or
         liquidated damages in respect of, any Debenture, as and when the same
         shall become due and payable (whether on a Conversion Date or the
         Maturity Date or by acceleration or otherwise) which default, solely in
         the case of an interest payment or other default under clause (B)
         above, is not cured, within 15 calendar days;

                         ii.   the Company shall fail to observe or perform any
         other covenant or agreement contained in this Debenture or any other
         Debenture (other than a breach by the Company of its obligations to
         deliver shares of Common Stock to the Holder upon conversion which
         breach is addressed in clause (xi) below) which failure is not cured,
         if possible to cure, within the earlier to occur of (A) 10

                                       21
<PAGE>
         calendar days after notice of such default sent by the Holder or by any
         other Holder and (B)10 Trading Days after the Company shall become or
         should have become aware of such failure;

                         iii.  a default or event of default (subject to any
         grace or cure period provided for in the applicable agreement, document
         or instrument) shall occur under (A) any of the Transaction Documents,
         or (B) any other material agreement, lease, document or instrument to
         which the Company or any Subsidiary of the Company is bound;

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

                         v.   if (i) the Company or any of its material
         Subsidiaries shall commence a case, as debtor, or there shall be
         commenced against the Company or any material Subsidiary of the
         Company, a case under any applicable bankruptcy or insolvency laws as
         now or hereafter in effect or any successor thereto, or the Company or
         any such material Subsidiary of 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 any such Subsidiary of the Company or (ii) there is
         commenced against the Company or any material Subsidiary of the Company
         any such bankruptcy, insolvency or other proceeding which remains
         undismissed for a period of 60 days; or (iii) the Company or any
         material Subsidiary of the Company is adjudicated by a court of
         competent jurisdiction insolvent or bankrupt; or any order of relief or
         other order approving any such case or proceeding is entered; or (iv)
         the Company or any material Subsidiary of 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 60 days; or (v) the Company or any material Subsidiary of the
         Company makes a general assignment for the benefit of creditors; or
         (vi) the Company shall fail to pay, or shall state that it is unable to
         pay, or shall be unable to pay, its debts generally as they become due;
         or (vii) the Company or any material Subsidiary of the Company thereof
         shall call a meeting of its creditors with a view to arranging a
         composition, adjustment or restructuring of its debts; or (viii) the
         Company or any Subsidiary of the Company thereof shall by any act or
         failure to act expressly indicate its consent to, approval of or
         acquiescence in any of the foregoing; or (ix) any corporate or other
         action is taken by the Company or any material Subsidiary of the
         Company for the purpose of effecting any of the foregoing;

                                       22
<PAGE>
                         vi.  the Company or any Subsidiary of the Company shall
         default in any of its obligations under any mortgage, credit agreement
         or other facility, indenture agreement, factoring agreement or other
         instrument under which there may be issued, or by which there may be
         secured or evidenced any Indebtedness for borrowed money or money due
         under any long term leasing or factoring arrangement of the Company in
         an amount exceeding $300,000, 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;

                         vii.  the Common Stock shall not be eligible for
         quotation on or quoted for trading on a Trading Market and shall not
         again be eligible for and quoted or listed for trading thereon within
         ten Trading Days;

                         viii. the Company shall be a party to any Change of
         Control Transaction or Fundamental Transaction, shall agree to sell or
         dispose of all or in excess of 40% of its assets in one or more
         transactions (whether or not such sale would constitute a Change of
         Control Transaction) or shall redeem or repurchase more than a de
         minimis number of its outstanding shares of Common Stock or other
         equity securities of the Company (other than redemptions of Conversion
         Shares and repurchases of shares of Common Stock or other equity
         securities of departing officers and directors of the Company; provided
         such repurchases shall not exceed $100,000, in the aggregate, for all
         officers and directors during the term of this Debenture);

                         ix.  a Registration Statement shall not have been
         declared effective by the Commission on or prior to the 180th calendar
         day after the Closing Date;

                         x.   if, during the Effectiveness Period (as defined in
         the Registration Rights Agreement), the effectiveness of the
         Registration Statement lapses for any reason or the Holder shall not be
         permitted to resell Registrable Securities (as defined in the
         Registration Rights Agreement) under the Registration Statement, in
         either case, for more than 15 consecutive Trading Days or 25
         non-consecutive Trading Days during any 12 month period; provided,
         however, that in the event that the Company is negotiating a merger,
         consolidation, acquisition or sale of all or substantially all of its
         assets or a similar transaction and in the written opinion of counsel
         to the Company, the Registration Statement, would be required to be
         amended to include information concerning such transactions or the
         parties thereto that is not available or may not be publicly disclosed
         at the time, the Company shall be permitted an additional 15
         consecutive Trading Days during any 12 month period relating to such an
         event; or

                         xi.   the Company shall fail for any reason to deliver
         certificates to a Holder prior to the fifth Trading Day after a
         Conversion Date pursuant to and in accordance with Section 4(d) or the
         Company shall provide notice to the Holder,

                                       23
<PAGE>
         including by way of public announcement, at any time, of its intention
         not to comply with requests for conversions of any Debentures in
         accordance with the terms hereof.

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

         Section 9.      Miscellaneous.
         ----------      --------------

                  a)     Notices. Any and all notices or other communications or
         deliveries to be provided by the Holder hereunder, including, without
         limitation, any Notice of Conversion, shall be in writing and delivered
         personally, by facsimile, sent by a nationally recognized overnight
         courier service, addressed to the Company, at the address set forth
         above, facsimile number (360) 253-4830, ATTN: CHIEF EXECUTIVE OFFICER
         or such other address or facsimile number as the Company may specify
         for such purposes by notice to the Holder delivered in accordance with
         this Section. Any and all notices or other communications or deliveries
         to be provided by the Company hereunder shall be in writing and
         delivered personally, by facsimile, sent by a nationally recognized
         overnight courier service addressed to each Holder at the facsimile
         telephone number or address of such Holder appearing on the books of
         the Company, or if no such facsimile telephone number or address
         appears, at the principal place of business of the Holder. Any notice
         or other communication or deliveries hereunder shall be deemed given
         and effective on the earliest of (i) the date of transmission, if such
         notice or communication is delivered via facsimile at the facsimile
         telephone number specified in this Section prior to 5:30 p.m. (New York
         City time), (ii) the date after the date of transmission, if such
         notice or communication is delivered via facsimile at the facsimile
         telephone number specified in this Section later than 5:30 p.m. (New
         York City time) on any date and earlier than 11:59 p.m. (New York City
         time) on such date, (iii) the second Business Day following the date

                                       24
<PAGE>
         of mailing, if sent by nationally recognized overnight courier service,
         or (iv) upon actual receipt by the party to whom such notice is
         required to be given.

                  b)     Absolute Obligation. Except as expressly provided
         herein, no provision of this Debenture shall alter or impair the
         obligation of the Company, which is absolute and unconditional, to pay
         the principal of, interest and liquidated damages (if any) on, this
         Debenture at the time, place, and rate, and in the coin or currency,
         herein prescribed. This Debenture is a direct debt obligation of the
         Company. This Debenture ranks pari passu with all other Debentures now
         or hereafter issued under the terms set forth herein.

                  c)     Security Interest. This Debenture is a direct debt
         obligation of the Company and pursuant to the Security Agreement shall
         be secured by a perfected security interest in all of the assets of the
         Company for the benefit of the holders of the Series A Debentures and
         Series B Debentures.

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

                  e)     Governing Law. All questions concerning the
         construction, validity, enforcement and interpretation of this
         Debenture shall be governed by and construed and enforced in accordance
         with the internal laws of the State of New York, without regard to the
         principles of conflicts of law thereof. Each party agrees that all
         legal proceedings concerning the interpretations, enforcement and
         defense of the transactions contemplated by any of the Transaction
         Documents (whether brought against a party hereto or its respective
         affiliates, directors, officers, shareholders, employees or agents)
         shall be commenced in the state and federal courts sitting in the City
         of New York, Borough of Manhattan (the "New York Courts"). Each party
         hereto hereby irrevocably submits to the exclusive jurisdiction of the
         New York Courts for the adjudication of any dispute hereunder or in
         connection herewith or with any transaction contemplated hereby or
         discussed herein (including with respect to the enforcement of any of
         the Transaction Documents), and hereby irrevocably waives, and agrees
         not to assert in any suit, action or proceeding, any claim that it is
         not personally subject to the jurisdiction of any such court, or such
         New York Courts are improper or inconvenient venue for such proceeding.
         Each party hereby irrevocably waives personal service of process and
         consents to process being served in any such suit, action or proceeding
         by mailing a copy thereof via registered or certified mail or overnight
         delivery (with evidence of delivery) to such party at the address in
         effect for notices to it under this Debenture and agrees that such
         service shall constitute good and sufficient service of process and
         notice thereof. Nothing contained herein shall be deemed to limit in
         any way any right to serve process in any manner permitted by law. Each
         party hereto hereby irrevocably waives, to the fullest


                                       25
<PAGE>
         extent permitted by applicable law, any and all right to trial by jury
         in any legal proceeding arising out of or relating to this Debenture or
         the transactions contemplated hereby. If either party shall commence an
         action or proceeding to enforce any provisions of this Debenture, then
         the prevailing party in such action or proceeding shall be reimbursed
         by the other party for its attorneys fees and other costs and expenses
         incurred with the investigation, preparation and prosecution of such
         action or proceeding.

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

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

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

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


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

                                       26
<PAGE>
         IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.



                                          WESTERN POWER & EQUIPMENT CORP.



                                          By: ___________________________
                                              Name:
                                              Title:























                                       27
<PAGE>
                                     ANNEX A

                              NOTICE OF CONVERSION


         The undersigned hereby elects to convert principal under the Variable
Rate Secured Convertible Debenture of Western Power & Equipment Corp., a
Delaware corporation (the "Company"), due on June 7, 2010, into shares of common
stock, par value $0.001 per share (the "Common Stock"), of the Company according
to the conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.

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

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



Conversion calculations:
                            Date to Effect Conversion:

                            Principal Amount of Debenture to be Converted:

                            Payment of Interest in Common Stock __ yes  __ no
                                If yes, $_____ of Interest Accrued on Account of
                                Conversion at Issue.

                            Conversion Price: $_________

                            Number of shares of Common Stock to be issued:


                            Signature:

                            Name:

                            Address:







                                       28
<PAGE>
                                   SCHEDULE 1

                               CONVERSION SCHEDULE

The Variable Rate Secured Convertible Debenture due on June 7, 2010, in the
aggregate principal amount of $____________ issued by Western Power & Equipment
Corp. This Conversion Schedule reflects conversions made under Section 4 of the
above referenced Debenture.


                                          Dated:


====================   ================   ===================   ================
                                          Aggregate Principal
                                           Amount Remaining
                                             Subsequent to
 Date of Conversion                           Conversion
(or for first entry,      Amount of          (or original
Original Issue Date)      Conversion       Principal Amount)     Company Attest
====================   ================   ===================   ================



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