swyv8k20090602ex10-1b.htm


    
      

      

    

    
      Execution
Version

      


      NEITHER
THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE.  THESE SECURITIES HAVE BEEN SOLD 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.

       

      SEAWAY
VALLEY CAPITAL CORPORATION

       

      Secured
Convertible Debenture

       

      
        	
                Issuance
      Date:  May 20, 2009

              	
                Original
      Principal Amount:    $4,113,640

              
	
                No.
      SWVL-01

              	 
      


      

      


      FOR VALUE RECEIVED, SEAWAY
VALLEY CAPITAL CORPORATION, a Delaware corporation (the "Company"), hereby
promises to pay to the order of SC PARTNERS, LLC or registered assigns (the
"Holder") the
amount set out above as the Original Principal Amount (as reduced pursuant to
the terms hereof pursuant to redemption, conversion or otherwise, the "Principal") when due,
whether upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("Interest") on
any outstanding Principal at the applicable Interest Rate from the date set out
above as the Issuance Date (the "Issuance Date") until
the same becomes due and payable, whether upon an Interest Date (as defined
below), or the Maturity Date or acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof).  This
Secured Convertible Debenture (including all Secured Convertible Debentures
issued in exchange, transfer or replacement hereof, this "Debenture") is issued
pursuant to the Exchange Agreement (collectively, the "Debentures").  Certain
capitalized terms used herein are defined in Section 17.

       

      (1)           GENERAL
TERMS

       

      (a)           Payment of
Principal.  On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal, accrued and
unpaid Interest.  The "Maturity Date" shall
be May 1, 2011, as may be extended at the option of the Holder (i) in the event
that, and for so long as, an Event of Default (as defined below) shall have
occurred and be continuing on the Maturity Date (as may be extended pursuant to
this Section 1) or any event shall have occurred and be continuing on the
Maturity Date (as may be extended pursuant to this Section 1) that with the
passage of time and the failure to cure would result in an Event of
Default.  Other than as specifically permitted by this Debenture, the
Company may not prepay or redeem any portion of the outstanding Principal
without the prior written consent of the Holder.


      
        
           


        

        
           


          
            

          

        

        
           


        

      

       

      (b)           Interest.  Interest
shall accrue on the outstanding principal balance hereof at an annual rate equal
to twelve percent (12%) (“Interest
Rate”).  Interest shall be calculated on the basis of a 365-day
year and the actual number of days elapsed, to the extent permitted by
applicable law.  Accrued Interest hereunder shall be paid on the
Maturity Date (or sooner as provided herein) to the Holder or its assignee in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures in cash or converted into Common Stock
at the Conversion Price provided the Equity Conditions are
satisfied.

       

      (c)           Security.  This
Debenture shall be secured by all of the collateral pledged to the Holder in
connection with all prior grants of security to the Holder, including without
limitation, a security interest in all of the assets of the Company and of each
of the Company's subsidiaries as evidenced by the security agreement dated May
20, 2009 and be referred to as the “Security
Documents”).

       

      (2)           EVENTS OF
DEFAULT.

       

      (a)           An
“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)            the
Company's failure to pay to the Holder any amount of Principal, Interest, or
other amounts when and as due under this Debenture (including, without
limitation, the Company's failure to pay any redemption payments or amounts
hereunder) or any other Transaction Document;

       

      (ii)           The
Company or any subsidiary of the Company shall commence, or there shall be
commenced against the Company or any subsidiary of the Company under any
applicable bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or the Company or any 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
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 61 days; or the Company or any
subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or the
Company or any subsidiary of the Company suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of 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 the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;


      
        
           


        

        
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      (iii)           The
Company or any subsidiary of the Company shall default in any of its obligations
under any other debenture or 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 or any subsidiary of the Company in an amount
exceeding $100,000, whether such indebtedness now exists or shall hereafter be
created;

       

      (iv)           the
Common Stock is quoted or listed for trading on any of the following and it
ceases to be so quoted or listed for trading and shall not again be quoted or
listed for trading on any Primary Market within five (5) Trading Days of such
delisting: (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the
Nasdaq Global Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC
Bulletin Board (“OTCBB”) (each, a “Primary
Market”);

       

      (v)           The
Company or any subsidiary of the Company shall be a party to any Change of
Control Transaction (as defined in Section 6) unless in connection with such
Change of Control Transaction this Debenture is retired;

       

      (vi)           the
Company's (A) failure to cure a Conversion Failure by delivery of the required
number of shares of Common Stock within five (5) Business Days after the
applicable Conversion Failure or (B) notice, written or oral, to any holder of
the Debentures, including by way of public announcement, at any time, of its
intention not to comply with a request for conversion of any Debentures into
shares of Common Stock that is tendered in accordance with the provisions of the
Debentures, other than pursuant to Section 4(c);

       

      (vii)          The
Company shall fail for any reason to deliver the payment in cash pursuant to a
Buy-In (as defined herein) within three (3) Business Days after such payment is
due;

       

      (viii)         The
Company shall fail to observe or perform any other covenant, agreement or
warranty contained in, or otherwise commit any breach or default of any
provision of this Debenture (except as may be covered by Section 2(a)(i) through
2(a)(vii) hereof) or any Transaction Document (as defined in Section 17) which
is not cured within the time prescribed.

       

      (ix)           any
Event of Default (as defined in the Other Debentures) occurs with respect to any
Other Debentures.

       

      (b)           During
the time that any portion of this Debenture is outstanding, if any Event of
Default has occurred, the full unpaid 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; provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the
Company.  Furthermore, in addition to any other remedies, the Holder
shall have the right (but not the obligation) to convert this Debenture at any
time after (x) an Event of Default or (y) the Maturity Date at the lower of the
applicable Conversion Price or the Default Conversion Price.  The
Holder need not provide and the Company hereby waives any presentment, demand,
protest or other notice of any kind, (other than required notice of conversion)
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. No such rescission or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.


      
        
           


        

        
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      (3)           COMPANY
REDEMPTION.

       

      (a)           Company’s Cash Redemption
Right.  The Company at its option shall have the right to
redeem (“Optional
Redemption”) a portion or all amounts outstanding under this Debenture
prior to the Maturity Date provided that as of the date of the Holder’s receipt
of a Redemption Notice (as defined herein) (i) the Closing Bid Price is less
than the Fixed Conversion Price, (ii)
the Underlying Shares Registration Statement is effective, and (iii) no Event of
Default has occurred.  The Company shall pay an amount equal to the
sum of the Principal amount being redeemed, plus a redemption premium (“Redemption Premium”)
equal to twenty percent (20%) of the Principal amount being redeemed, plus
accrued and unpaid Interest, (collectively referred to as the “Company Additional
Redemption
Amount”).  In order to make a redemption pursuant to this
Section, the Company shall first provide written notice to the Holder of its
intention to make a redemption (the “Redemption Notice”)
setting forth the amount of Principal it desires to redeem.  After
receipt of the Redemption Notice the Holder shall have three (3) Business Days
to elect to convert all or any portion of this Debenture, subject to the
limitations set forth in Section 4(b).  On the fourth (4th) Business
Day after the Redemption Notice, the Company shall deliver to the Holder the
Company Additional Redemption Amount with respect to the Principal amount
redeemed after giving effect to conversions effected during the three (3)
Business Day period.

       

      (4)           CONVERSION OF
DEBENTURE.   This Debenture shall be convertible into
shares of the Company's Common Stock, on the terms and conditions set forth in
this Section 4.

       

      (a)           Conversion
Right.  Subject to the provisions of Section 4(c), at any time
or times on or after the Issuance Date, the Holder shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount (as defined below)
into fully paid and nonassessable shares of Common Stock in accordance with
Section 4(b), at the Conversion Rate (as defined below).  The number
of shares of Common Stock issuable upon conversion of any Conversion Amount
pursuant to this Section 4(a) shall be determined by dividing (x) such
Conversion Amount by (y) the Conversion Price (the "Conversion
Rate").  The Company shall not issue any fraction of a share of
Common Stock upon any conversion.  If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole
share.  The Company shall pay any and all transfer, stamp and similar
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount.


      
        
           


        

        
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      (i)           "Conversion Amount"
means the portion of the Principal and accrued Interest to be converted,
redeemed or otherwise with respect to which this determination is being
made.

       

      (ii)           "Conversion Price"
means, as of any Conversion Date (as defined below) or other date of
determination the lesser of (a) $.01 (the “Fixed Conversion
Price”), subject to adjustment as provided herein, or (b) fifty
percent (50%) of the lowest Volume Weighted Average Price during the five
(5) Trading Days immediately preceding the Conversion Date (the “Market Conversion
Price”).

       

      (b)           Mechanics of
Conversion.

       

      (i)           Optional
Conversion.  To convert any Conversion Amount into shares of
Common Stock on any date (a "Conversion Date"),
the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed
notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice")
to the Company and (B) if required by Section 4(b)(iv), surrender this Debenture
to a nationally recognized overnight delivery service for delivery to the
Company (or an indemnification undertaking reasonably satisfactory to the
Company with respect to this Debenture in the case of its loss, theft or
destruction).  On or before the third Business Day following the date
of receipt of a Conversion Notice (the "Share Delivery
Date"), the Company shall (X) if legends are not required to be placed on
certificates of Common Stock pursuant to the Exchange Agreement and provided
that the Transfer Agent is participating in the Depository Trust Company's
("DTC") Fast
Automated Securities Transfer Program, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder's or its
designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and deliver to the address as
specified in the Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to which the
Holder shall be entitled which certificates shall not bear any restrictive
legends unless required pursuant the Exchange Agreement.  If this
Debenture is physically surrendered for conversion and the outstanding Principal
of this Debenture is greater than the Principal portion of the Conversion Amount
being converted, then the Company shall as soon as practicable and in no event
later than three (3) Business Days after receipt of this Debenture and at its
own expense, issue and deliver to the holder a new Debenture representing the
outstanding Principal not converted.  The Person or Persons entitled
to receive the shares of Common Stock issuable upon a conversion of this
Debenture shall be treated for all purposes as the record holder or holders of
such shares of Common Stock upon the transmission of a Conversion
Notice.

       

      (ii)           Company's Failure to Timely
Convert.  If within three (3) Trading Days after the Company's
receipt of the facsimile copy of a Conversion Notice the Company shall fail to
issue and deliver a certificate to the Holder or credit the Holder's balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon such holder's conversion of any Conversion Amount (a "Conversion Failure"),
and if on or after such Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
the Holder of Common Stock issuable upon such conversion that the Holder
anticipated receiving from the Company (a "Buy-In"), then the
Company shall, within three (3) Business Days after the Holder's request and in
the Holder's discretion, either (i) pay cash to the Holder in an amount equal to
the Holder's total purchase price (including brokerage commissions and other out
of pocket expenses, if any) for the shares of Common Stock so purchased (the
"Buy-In Price"), at which point the
Company's obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock, times (B) the Closing
Bid Price on the Conversion Date.


      
        
           


        

        
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      (iii)    
      Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon conversion of
any portion of this Debenture in accordance with the terms hereof, the Holder
shall not be required to physically surrender this Debenture to the Company
unless (A) the full Conversion Amount represented by this Debenture is being
converted or (B) the Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
this Debenture upon physical surrender of this Debenture.  The Holder
and the Company shall maintain records showing the Principal and Interest
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Debenture upon conversion.

       

      (c)           Limitations on Conversions
or Trading.

       

      (i)    
       Beneficial
Ownership.  The Company shall not effect any conversions of
this Debenture and the Holder shall not have the right to convert any portion of
this Debenture or receive shares of Common Stock as payment of interest
hereunder to the extent that after giving effect to such conversion or receipt
of such interest payment, the Holder, together with any affiliate thereof, would
beneficially own (as determined in accordance with Section 13(d) of the Exchange
Act and the rules promulgated thereunder) in excess of 4.99% of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of
interest.    Since the Holder will not be obligated to
report to the Company the number of shares of Common Stock it may hold at the
time of a conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 4.99% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of this
Debenture is convertible shall be the responsibility and obligation of the
Holder.  If the Holder has delivered a Conversion Notice for a
principal amount of this Debenture that, without regard to any other shares that
the Holder or its affiliates may beneficially own, would result in the issuance
in excess of the permitted amount hereunder, the Company shall notify the Holder
of this fact and shall honor the conversion for the maximum principal amount
permitted to be converted on such Conversion Date in accordance with Section
4(a) and, any principal amount tendered for conversion in excess of the
permitted amount hereunder shall remain outstanding under this Debenture. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 65 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.


      
        
           


        

        
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      (ii)      
     Trading
Limitation.  None

       

      (d)           Other
Provisions.

       

      (i)       
    The Company shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares of Common
Stock issuable upon conversion of all outstanding amounts under this Debenture;
and within three (3) Business Days following the receipt by the Company of a
Holder's notice that such minimum number of Underlying Shares is not so
reserved, the Company shall promptly reserve a sufficient number of shares of
Common Stock to comply with such requirement.

       

      (ii)           All
calculations under this Section 4 shall be rounded to the nearest $0.0001 or
whole share.

       

      (iii)           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, not less
than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in this Debenture or in the Transaction Documents) be issuable (taking
into account the adjustments and restrictions set forth herein) 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 Underlying Shares Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Shares Registration
Statement.

       

      (iv)           Nothing
herein shall limit a Holder's right to pursue actual damages or declare an Event
of Default pursuant to Section 2 herein for the Company 's failure to deliver
certificates representing shares of Common Stock upon conversion 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, in each case without
the need to post a bond or provide other security. 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.

       

      (5)           Adjustments to Conversion
Price

       

      (a)           Adjustment of Conversion
Price upon Issuance of Common Stock.  If the Company, at any
time while this Debenture is outstanding, issues or sells, or in accordance with
this Section 5(a) is deemed to have issued or sold, any shares of Common Stock,
excluding shares of Common Stock deemed to have been issued or sold by the
Company in connection with any Excluded Securities, for a consideration per
share (the “New
Issuance Price”) less than a price equal to the Conversion Price in
effect immediately prior to such issue or sale (such price the "Applicable Price")
(the foregoing a "Dilutive Issuance"),
then immediately after such Dilutive Issuance the Conversion Price then in
effect shall be reduced to an amount equal to the New Issuance
Price.  For purposes of determining the adjusted Conversion Price
under this Section 5(a), the following shall be applicable:


      
        
           


        

        
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      (i)    
       Issuance of
Options.  If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of such Option is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share.  For
purposes of this Section, the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon conversion
or exchange or exercise of any Convertible Securities issuable upon exercise of
such Option" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon granting or sale of the Option, upon exercise of the Option
and upon conversion or exchange or exercise of any Convertible Security issuable
upon exercise of such Option.  No further adjustment of the Conversion
Price shall be made upon the actual issuance of such share of Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange or exercise of such
Convertible Securities.

       

      (ii)           Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange or exercise thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per
share.  For the purposes of this Section, the "lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
or exercise" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion or exchange or exercise of such Convertible Security.  No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion or exchange or exercise
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment
of the Conversion Price had been or are to be made pursuant to other provisions
of this Section, no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.

       

      (iii)           Change in Option Price or
Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exchange or exercise of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion Price in effect
at the time of such change shall be adjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible Securities
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold.  For purposes of this Section, if the terms of any Option or
Convertible Security that was outstanding as of the Issuance Date are changed in
the manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change.  No adjustment shall be made if such adjustment
would result in an increase of the Conversion Price then in
effect.


      
        
           


        

        
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      (iv)           Calculation of Consideration
Received.  In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been issued
for the difference of (x) the aggregate fair market value of such Options and
other securities issued or sold in such integrated transaction, less (y) the
fair market value of the securities other than such Option, issued or sold in
such transaction and the other securities issued or sold in such integrated
transaction will be deemed to have been issued or sold for the balance of the
consideration received by the Company.  If any Common Stock, Options
or Convertible Securities are issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor will be deemed to be the
gross amount raised by the Company; provided, however, that such gross amount is
not greater than 110% of the net amount received by the Company
therefor.  If any Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Closing Bid Price of such securities on the date of receipt.  If any
Common Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be.  The fair value of any consideration
other than cash or securities will be determined jointly by the Company and the
Holder.  If such parties are unable to reach agreement within ten (10)
days after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holder.  The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne by the Company.

       

      (v)           Record
Date.  If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.


      
        
           


        

        
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      (b)           Adjustment of Conversion
Price upon Subdivision or Combination of Common Stock.  If the
Company, at any time while this Debenture is outstanding, shall (a) pay a
stock dividend or otherwise make a distribution or distributions on shares of
its Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock, (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (d) issue
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 before such event and of which the
denominator shall be the number of shares of Common Stock outstanding 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.

       

      (c)           Purchase
Rights.  If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"),
then the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Debenture (without taking into account any
limitations or restrictions on the convertibility of this Debenture) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.

       

      (d)           Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 4 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Debenture; provided that no
such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 5.

       

      (e)           Other Corporate
Events.  In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "Corporate
Event"), the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon a conversion of this
Debenture, at the Holder's option, (i) in addition to the shares of Common Stock
receivable upon such conversion, such securities or other assets to which the
Holder would have been entitled with respect to such shares of Common Stock had
such shares of Common Stock been held by the Holder upon the consummation of
such Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Debenture) or (ii) in lieu of the
shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Debenture initially been
issued with conversion rights for the form of such consideration (as opposed to
shares of Common Stock) at a conversion rate for such consideration commensurate
with the Conversion Rate.  Provision made pursuant to the preceding
sentence shall be in a form and substance satisfactory to the Required
Holders.  The provisions of this Section shall apply similarly and
equally to successive Corporate Events and shall be applied without regard to
any limitations on the conversion or redemption of this
Debenture.


      
        
           


        

        
          10

          
            

          

        

        
           


        

      

       

      (f)           Whenever
the Conversion Price is adjusted pursuant to Section 5 hereof, the Company shall
promptly mail to the Holder a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.

       

      (g)           In
case of any (1) merger or consolidation of the Company or any subsidiary of the
Company with or into another Person, or (2) sale by the Company or any
subsidiary of the Company of more than one-half of the assets of the Company in
one or a series of related transactions, a Holder shall have the right to (A)
exercise any rights under Section 2(b), (B) convert the aggregate amount of this
Debenture then outstanding into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and such Holder shall be entitled
upon such event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of this Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (C) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible Debenture with a principal amount
equal to the aggregate principal amount of this Debenture then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible Debenture shall have terms identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and privileges of the Holder of this Debenture
set forth herein and the agreements pursuant to which this Debentures were
issued. In the case of clause (C), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible Debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale or consolidation shall include such terms so as
to continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such
events.

       

      (6)           REISSUANCE OF THIS
DEBENTURE.

       

      (a)           Transfer.  If
this Debenture is to be transferred, the Holder shall surrender this Debenture
to the Company, whereupon the Company will, subject to the satisfaction of the
transfer provisions of the Exchange Agreement, forthwith issue and deliver upon
the order of the Holder a new Debenture (in accordance with Section 6(d)),
registered in the name of the registered transferee or assignee, representing
the outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Debenture (in
accordance with Section 6(d)) to the Holder representing the outstanding
Principal not being transferred.  The Holder and any assignee, by
acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of Section 4(b)(iii) following conversion or redemption of any
portion of this Debenture, the outstanding Principal represented by this
Debenture may be less than the Principal stated on the face of this
Debenture.


      
        
           


        

        
          11

          
            

          

        

        
           


        

      

       

      (b)           Lost, Stolen or Mutilated
Debenture.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Debenture, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Debenture,
the Company shall execute and deliver to the Holder a new Debenture (in
accordance with Section 6(d)) representing the outstanding
Principal.

       

      (c)           Debenture Exchangeable for
Different Denominations.  This Debenture is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Debenture or Debentures (in accordance with Section 6(d)) representing in
the aggregate the outstanding Principal of this Debenture, and each such new
Debenture will represent such portion of such outstanding Principal as is
designated by the Holder at the time of such surrender.

       

      (d)           Issuance of New
Debentures.  Whenever the Company is required to issue a new
Debenture pursuant to the terms of this Debenture, such new Debenture (i) shall
be of like tenor with this Debenture, (ii) shall represent, as indicated on the
face of such new Debenture, the Principal remaining outstanding (or in the case
of a new Debenture being issued pursuant to Section 6(a) or Section 6(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Debentures issued in connection with such issuance,
does not exceed the Principal remaining outstanding under this Debenture
immediately prior to such issuance of new Debentures), (iii) shall have an
issuance date, as indicated on the face of such new Debenture, which is the same
as the Issuance Date of this Debenture, (iv) shall have the same rights and
conditions as this Debenture, and (v) shall represent accrued and unpaid
Interest from the Issuance Date.

       

      (7)           NOTICES.  Any
notices, consents, waivers or other communications required or permitted to be
given under the terms hereof must be in writing and will be deemed to have been
delivered:  (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) Trading Day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same.  The addresses and facsimile numbers for such
communications shall be:


      
        
           


        

        
          12

          
            

          

        

        
           


        

      

       

      
        	
                If
      to the Company, to:

              	
                Seaway
      Valley Capital Corporation

              
	 
      	
                10-18
      Park Street, 2nd
      Floor

              
	 
      	
                Gouverneur,
      NY 13642

              
	 
      	
                Attention:
      Chief Executive Officer

              
	 
      	 
      
	
                With
      a copy to:

              	
                Law
      Office of William M. Aul

              
	 
      	
                7676
      Hazard Center Drive, Suite 500

              
	 
      	
                San
      Diego, CA 92108

              
	 
      	
                Attention:  William
      M. Aul

              
	 
      	
                Telephone:  619-497-2555

              
	 
      	
                Facsimile:     619-542-0555

              


      

      


      
        	
                If
      to the Holder:

              	
                SC
      Partners, LLC

              
	 
      	
                22
      Park Street, 1st
      Floor

              
	 
      	
                Gouverneur,
      NY 13642

              
	 
      	
                Attention:    President

              
	 
      	 
      


      

      


      or at
such other address and/or facsimile number and/or to the attention of such other
person as the recipient party has specified by written notice given to each
other party three (3) Business Days prior to the effectiveness of such
change.  Written confirmation of receipt (i) given by the recipient of
such notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

       

      (8)           Except
as expressly provided herein, no provision of this Debenture shall alter or
impair the obligations of the Company, which are absolute and unconditional, to
pay the principal of, interest and other charges (if any) on, this Debenture at
the time, place, and rate, and in the coin or currency, herein
prescribed.  This Debenture is a direct obligation of the Company. As
long as this Debenture is outstanding, the Company shall not and shall cause
their subsidiaries not to, without the consent of the Holder, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder; (ii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Underlying Shares to the extent permitted
or required under the Transaction Documents; or (iii) enter into any agreement
with respect to any of the foregoing.

       

      (9)           This
Debenture shall not entitle the Holder to any of the rights of a stockholder of
the Company, including without limitation, the right to vote, to receive
dividends and other distributions, or to receive any notice of, or to attend,
meetings of stockholders or any other proceedings of the Company, unless and to
the extent converted into shares of Common Stock in accordance with the terms
hereof.


      
        
           


        

        
          13

          
            

          

        

        
           


        

      

       

      (10)           No
indebtedness of the Company is senior to this Debenture in right of payment,
whether with respect to interest, damages or upon liquidation or dissolution or
otherwise.  Without the Holder’s consent, the Company will not and
will not permit any of their subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits there from that is senior in
any respect to the obligations of the Company under this Debenture.

       

      (11)           This
Debenture shall be governed by and construed in accordance with the laws of the
State of New Jersey, without giving effect to conflicts of laws
thereof.  Each of the parties consents to the jurisdiction of the
Superior Courts of the State of New Jersey sitting in Hudson County, New Jersey
and the U.S. District Court for the District of New Jersey sitting in
Newark, New Jersey in connection with any dispute arising under this Debenture
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens to the bringing of any
such proceeding in such jurisdictions.

       

      (12)           If
the Company fails to strictly comply with the terms of this Debenture, then the
Company shall reimburse the Holder promptly for all fees, costs and expenses,
including, without limitation, attorneys’ fees and expenses incurred by the
Holder in any action in connection with this Debenture, including, without
limitation, those incurred: (i) during any workout, attempted workout, and/or in
connection with the rendering of legal advice as to the Holder’s rights,
remedies and obligations, (ii) collecting any sums which become due to the
Holder, (iii) defending or prosecuting any proceeding or any counterclaim to any
proceeding or appeal; or (iv) the protection, preservation or enforcement of any
rights or remedies of the Holder.

       

      (13)           Any
waiver by 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
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.

       

      (14)           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 shall violate 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.


      
        
           


        

        
          14

          
            

          

        

        
           


        

      

       

      (15)           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.

       

      (16)           THE
PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF
THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

       

      (17)           CERTAIN
DEFINITIONS  For purposes of this Debenture, the following
terms shall have the following meanings:

       

      (a)           “Approved Stock Plan”
means a stock option plan that has been approved by the Board of Directors of
the Company, pursuant to which the Company’s securities may be issued only to
any employee, officer, or director for services provided to the
Company.

       

      (b)           "Bloomberg" means
Bloomberg Financial Markets.

       

      (c)           “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 are
authorized or required by law or other government action to close.

       

      (d)           “Change of Control
Transaction” means the occurrence of (a) 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 fifty percent (50%) of the voting
securities of the Company (except that the acquisition of voting securities by
the Holder or any other current holder of convertible securities of the Company
shall not constitute a Change of Control Transaction for purposes hereof), (b) a
replacement at one time or over time of more than one-half of the members of the
board of directors of the Company 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), (c)
the merger, consolidation or sale of fifty percent (50%) or more of the assets
of the Company or any subsidiary of the Company in one or a series of related
transactions with or into another entity, or (d) 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 (a), (b) or (c).


      
        
           


        

        
          15

          
            

          

        

        
           


        

      

       

      (e)           “Closing Bid Price”
means the price per share in the last reported trade of the Common Stock on a
Primary Market or on the exchange  which the Common Stock is then
listed as quoted by Bloomberg.

       

      (f)           “Convertible
Securities” means any stock or securities (other than Options) directly
or indirectly convertible into or exercisable or exchangeable for Common
Stock.

       

      (g)           “Commission” means the
Securities and Exchange Commission.

       

      (h)           “Common Stock” means
the common stock, par value $.0001, of the Company and stock of any other class
into which such shares may hereafter be changed or reclassified.

       

      (i)           “Default Conversion
Price” means $0.001.

       

      (j)           “Equity Conditions”
means that each of the following conditions is satisfied:  (i) on each
day during the period beginning two (2) weeks prior to the applicable date of
determination and ending on and including the applicable date of determination
(the "Equity Conditions Measuring Period"), either (x) an Underlying Shares
Registration Statement shall be effective and available for the resale of all
applicable shares of Common Stock to be issued in connection with the event
requiring determination or (y) all applicable shares of Common Stock to be
issued in connection with the event requiring determination shall be eligible
for sale without restriction and without the need for registration under any
applicable federal or state securities laws; (ii) on each day during the Equity
Conditions Measuring Period, the Common Stock is designated for quotation on the
Principal Market and shall not have been suspended from trading on such exchange
or market nor shall delisting or suspension by such exchange or market been
threatened or pending either (A) in writing by such exchange or market or (B) by
falling below the then effective minimum listing maintenance requirements of
such exchange or market; (iii) during the Equity Conditions Measuring Period,
the Company shall have delivered Conversion Shares upon conversion of the
Debentures to the Holder on a timely basis as set forth in Section 4(b)(ii)
hereof; (iv) any applicable shares of Common Stock to be issued in connection
with the event requiring determination may be issued in full without violating
Section 4(c) hereof and the rules or regulations of the Primary Market; (v)
during the Equity Conditions Measuring Period, there shall not have occurred
either (A) an Event of Default or (B) an event that with the passage of time or
giving of notice would constitute an Event of Default; and (vii) the Company
shall have no knowledge of any fact that would cause (x) the Registration
Statements required pursuant to the Registration Rights Agreement not to be
effective and available for the resale of all applicable shares of Common Stock
to be issued in connection with the event requiring determination or (y) any
applicable shares of Common Stock to be issued in connection with the event
requiring determination not to be eligible for sale without restriction and
without the need for registration under any applicable federal or state
securities laws.

       

      (k)           
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.


      
        
           


        

        
          16

          
            

          

        

        
           


        

      

       

      (l)       
     “Exchange Agreement”
means the Exchange Agreement dated the date hereof by and among the Company and
the Holder.

       

      (m)           “Excluded Securities”
means, (a) shares issued or deemed to have been issued by the Company pursuant
to an Approved Stock Plan (b) shares of Common Stock issued or deemed to be
issued by the Company upon the conversion, exchange or exercise of any right,
option, obligation or security outstanding on the date prior to date of the
Exchange Agreement, provided that the terms of such right, option, obligation or
security are not amended or otherwise modified on or after the date of the
Exchange Agreement, and provided that the conversion price, exchange price,
exercise price or other purchase price is not reduced, adjusted or otherwise
modified and the number of shares of Common Stock issued or issuable is not
increased (whether by operation of, or in accordance with, the relevant
governing documents or otherwise) on or after the date of the Exchange
Agreement, (c) shares issued in connection with any acquisition by the Company,
whether through an acquisition of stock or a merger of any business, assets or
technologies, leasing arrangement or any other transaction the primary purpose
of which is not to raise equity capital, and (d) the shares of Common Stock
issued or deemed to be issued by the Company upon conversion of this
Debenture.

       

      (n)           “Options” means any
rights, warrants or options to subscribe for or purchase shares of Common Stock
or Convertible Securities.

       

      (o)           “Original Issue Date”
means the date of the first issuance of this Debenture regardless of the number
of transfers and regardless of the number of instruments, which may be issued to
evidence such Debenture.

       

      (p)           "Other Debentures"
means any debenture, note, or other instrument documenting any indebtedness owed
by the Company to the Holder, whether previously incurred, or hereinafter
incurred.

       

      (q)           “Person” means a
corporation, an association, a partnership, organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.

       

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

       

      (s)           “Trading Day” means a
day on which the shares of Common Stock are quoted on the OTCBB or quoted or
traded on such Primary Market on which the shares of Common Stock are then
quoted or listed; provided, that in the event that the shares of Common Stock
are not listed or quoted, then Trading Day shall mean a Business
Day.

       

      (t)           “Transaction
Documents” means the Exchange Agreement or any other agreement delivered
in connection with the Exchange Agreement, including, without limitation, the
Security Documents, the Irrevocable Transfer Agent Instructions, and the
Registration Rights Agreement.

       

      (u)           “Underlying Shares”
means the shares of Common Stock issuable upon conversion of this Debenture or
as payment of interest in accordance with the terms hereof.


      
        
           


        

        
          17

          
            

          

        

        
           


        

      

       

      (v)           “Underlying Shares
Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Underlying Shares and naming the Holder as a
“selling stockholder” thereunder.

       

      (w)           "Volume Weighted Average
Price" means, for any security as of any date, the daily dollar
volume-weighted average price for such security on the Primary Market as
reported by Bloomberg through its “Historical Prices – Px Table with Average
Daily Volume” functions, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC.

       

      (x)           "Warrants" has the
meaning ascribed to such term in the Exchange  Agreement, and shall
include all warrants issued in exchange therefor or replacement
thereof.

       

      [Signature
Page Follows]

       

      



      
        
           


        

        
          18

          
            

          

        

        
           


        

      

      


      IN WITNESS WHEREOF, the
Company has caused this Secured Convertible Debenture to be duly executed by a
duly authorized officer as of the date set forth above.

       

      


      
        	 
      	
                COMPANY:

              
	 
      	
                SEAWAY
      VALLEY CAPITAL CORPORATION

              
	 
      	 
      
	 
      	 
      
	 
      	
                By:                                                                

              
	 
      	
                Name:  Thomas
      W. Scozzafava

              
	 
      	
                Title:    Chief
      Executive Officer

              
	 
      	 
      


      

      


      



      
        
           


        

        
          
          

          
            

          

        

        
           


        

      

       

      EXHIBIT
I

       

      CONVERSION
NOTICE

       

       

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

       

      


      
        	
                TO:

              


      

      


      The
undersigned hereby irrevocably elects to convert $                                        
of the principal amount of Debenture No. SWVC 6-1 into Shares of Common Stock of
SEAWAY VALLEY CAPITAL
CORPORATION, according to the conditions stated therein, as of the
Conversion Date written below.

       

      
        	
                Conversion
      Date:

              	 
      	 
	
                Conversion
      Amount to be converted:

              	
                $                                                                                     

              	 
	
                Conversion
      Price:

              	
                $                                                                                     

              	 
	
                Number
      of shares of Common Stock to be issued:

              	 
      	 
	
                Amount
      of Debenture Unconverted:

              	
                $                                                                                     

              	 
	 
      	 
      	 
	 
      	 
      	 
	
                Please
      issue the shares of Common Stock in the following name and to the
      following address:

              	 
	
                Issue
      to:

              	 
      	 
	 
      	 
      	 
	
                Authorized
      Signature:

              	 
      	 
	
                Name:

              	 
      	 
	
                Title:

              	 
      	 
	
                Broker
      DTC Participant Code:

              	 
      	 
	
                Account
      Number: