Exhibit 10.2


 


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: December     , 2007


Original Conversion Price
(subject to adjustment herein): $0.30


 


$                 


 


ORIGINAL ISSUE DISCOUNT


8% SECURED CONVERTIBLE DEBENTURE


DUE JUNE      , 2010


 


THIS DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount 8% Secured Convertible Debentures of Ecotality, Inc., a Nevada corporation, (the “Company”), having its principal place of business at 6821 East Thomas Road, Scottsdale, Arizona 85251, designated as its Original Issue Discount 8% Secured Convertible Debenture due June       , 2010 (this debenture, the “Debenture” and, collectively with the other debentures of such series, 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 $                     
on June      , 2010 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted
to be repaid as provided hereunder, 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 shall have the


 


1

















 


meanings
set forth 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(e).


 


“Bankruptcy Event” means any of the following events: (a) the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w)
of Regulation S-X) thereof commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to the Company or any Significant Subsidiary thereof; (b) there is
commenced against the Company or any Significant Subsidiary thereof any such
case or proceeding that is not dismissed within 60 days after commencement; (c)
the Company or any Significant Subsidiary thereof is adjudicated insolvent or
bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Significant Subsidiary thereof
suffers any appointment of any custodian or the like for it or any substantial
part of its property that is not discharged or stayed within 60 calendar days
after such appointment; (e) the Company or any Significant Subsidiary thereof
makes a general assignment for the benefit of creditors; (f) the Company or any
Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or (g) the
Company or any Significant Subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.


 


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


 


“Business Day” means any day except any Saturday, any Sunday,
any day which shall be a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized or
required by law or other governmental 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 33% of the voting securities of the Company (other than by means of
conversion or exercise of the Debentures and the Securities issued together
with the Debentures), 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 66% of the aggregate voting power of
the Company or the successor entity of such transaction, or (iii) the Company
sells or transfers all or substantially all of its assets to another Person and
the stockholders of the


 


2

















 


Company
immediately prior to such transaction own less than 66% of the aggregate voting
power of the acquiring entity immediately after the transaction, or (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 in clauses (i) through (iv) above.


 


“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, collectively, the shares of Common
Stock issuable upon conversion of this Debenture in accordance with the terms
hereof.


 


“Debenture Register” shall have the meaning set forth in Section
2(b).


 


“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 set forth in the
Registration Rights Agreement.


 


“Equity Conditions” means, 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 Notices of Conversion of the
Holder, if any, (ii) the Company shall have paid all liquidated damages and
other amounts owing to the Holder in respect of this Debenture, (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 a Trading Market and all of the
shares issuable pursuant to the Transaction Documents are listed or quoted for
trading on such 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
no existing Event of Default or no existing 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 an Optional or Monthly
Redemption, the shares issuable upon conversion in full of the Optional or
Monthly Redemption Amount) to the Holder would not violate the limitations set
forth in Section 4(c) herein, (viii) there has


 


3

















 


been no public
announcement of a pending or propposed Fundamental Transaction or Change of
Control Transaction that has not been consummated, (ix) the Holder is not in
possession of any information provided by the Company that constitutes, or may
constitute, material non-public information and (x) the average daily trading
volume for a period of 20 consecutive Trading Days prior to the applicable date
in question on the principal Trading Market exceeds 200,000 shares (subject to
adjustment for forward and reverse stock splits and the like) per Trading Day.


 


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


 


“Forced Conversion”
shall have the meaning set forth in Section 6(d).


 


“Forced Conversion Date”
shall have the meaning set forth in Section 6(d).


 


“Forced Conversion Notice” shall have the meaning set forth in
Section 6(d).


 


“Forced Conversion Notice Date” shall have the meaning set forth
in Section 6(d).


 


“Fundamental Transaction” shall have the meaning set forth in
Section 5(e).


 


“Late Fees” shall have the meaning set forth in Section 2(c).


 


“Mandatory Default Amount” 
means the sum of (i) the greater of (A) 130% of the outstanding
principal amount of this Debenture, plus 100% of accrued and unpaid interest
hereon, or (B) the outstanding principal amount of this Debenture, plus all
accrued and unpaid interest hereon, divided by the Conversion Price on the date
the Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower Conversion Price, multiplied by the VWAP on the date the
Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in
full, whichever has a higher VWAP, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of this Debenture.


 


“Monthly Conversion Period” shall have the meaning set forth in
Section 6(b) hereof.


 


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


 


“Monthly Redemption” means the redemption of this Debenture
pursuant to Section 6(b) hereof.


 


4

















 


“Monthly Redemption Amount” means, as to a Monthly Redemption,
$[            (1), plus accrued but unpaid interest, liquidated
damages and any other amounts then owing to the Holder in respect of this
Debenture.


 


“Monthly Redemption Date” means June      ,
2008, and the         calendar day of each
month thereafter, and terminating upon the full redemption of this Debenture.


 


“Monthly Redemption Notice” 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).


 


“Optional Redemption” shall have the meaning set forth in
Section 6(a).


 


“Optional Redemption Amount” means the sum of (i) 115% of the
then outstanding principal amount of the Debenture, (ii) accrued but unpaid
interest and (iii) all liquidated damages and other amounts due in respect of
the Debenture.


 


“Optional Redemption Date” shall have the meaning set forth in
Section 6(a).


 


“Optional Redemption Notice” shall have the meaning set forth in
Section 6(a).


 


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


 


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


 


“Permitted Indebtedness” means (a) the indebtedness evidenced by
the Debentures, (b) up to $2,000,000, in the aggregate, of non-equity linked
indebtedness under accounts receivable or inventory lines of credit with a
federal or state regulated bank or nationally recognized commercial lending
institution whose primary business is not investing in securities and (c)
indebtedness existing on the Original Issue Date and set forth on Schedule
3.1(n) to the Purchase Agreement.


 


“Permitted Lien” means 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)
Liens imposed by law which were incurred in the ordinary course of the


 






(1)               1/24th
of the original Principal Amount of this Debenture


 


5

















 


Company’s
business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory
landlords’ Liens, and other similar Liens arising in the ordinary course of the
Company’s business, and which (x) 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) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for
the foreseeable future the forfeiture or sale of the property or asset subject
to such Lien; (c) Liens incurred in connection with Permitted Indebtedness
under clauses (a) and (c); and (d) Liens incurred in connection with Permitted
Indebtedness under clause (b) thereunder, provided that such Liens are not
secured by assets of the Company or its Subsidiaries other than the accounts
receivable and/or inventory subject to such lines of credit.


 


“Purchase Agreement” means the Securities Purchase Agreement,
dated as of December 6, 2007
among the Company and the original Holders, as amended, modified or
supplemented from time to time in accordance with its terms.


 


“Registration Rights Agreement” means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, among the Company
and the original Holders, as amended, modified or supplemented from time to
time in accordance with its terms.


 


“Registration Statement” means a registration statement that
registers the resale of all Conversion Shares and Interest Conversion Shares of
the Holder, names the Holder as a “selling stockholder” therein, and meets the
requirements of the Registration Rights Agreement.


 


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


 


“Share Delivery Date” shall have the meaning set forth in
Section 4(d).


 


“Subsidiary” shall have the meaning set forth in the Purchase
Agreement.


 


“Threshold Period” shall have the meaning set forth in Section
6(d).


 


“Trading Day” means a day on which the New York Stock Exchange
is open for business.


 


“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 American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global
Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC
Bulletin Board.


 


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


 


6

















 


“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 Trading
Market on which the Common Stock is then listed or quoted for trading as
reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin
Board is not a Trading Market, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC Bulletin Board;
(c) if the Common Stock is not then quoted for trading on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by 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 (d) in all other cases, the fair market
value of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to the Company.


 


Section 2.               Interest.


 


a)             Payment
of Interest in Cash. The Company shall pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture
at the rate of 8% per annum, payable quarterly on January 1, April 1, July 1
and October 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 Optional Redemption Date (as to that principal amount then
being redeemed) and on the Maturity Date (each such date, an “Interest
Payment Date”) (if any Interest Payment Date is not a Business Day, then
the applicable payment shall be due on the next succeeding Business Day), in
cash.


 


b)            Interest
Calculations. Interest shall be calculated on the basis of a 360-day year,
consisting of twelve 30 calendar day periods, and shall accrue daily commencing
on the Original Issue Date until payment in full of the outstanding principal,
together with all accrued and unpaid interest, liquidated damages and other
amounts which may become due hereunder, has been made. Interest shall cease to
accrue with respect to any principal amount converted, provided that the
Company actually delivers the Conversion Shares within the time period required
by Section 4(d)(ii) herein. 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 this Debenture (the “Debenture Register”).


 


c)             Late
Fee. All overdue accrued and unpaid interest to be paid hereunder shall
entail a late fee at an interest rate equal to the lesser of 18% per annum or
the maximum rate permitted by applicable law (“Late Fees”) which shall
accrue daily from the date such interest is due hereunder through and including
the date of actual payment in full.


 


7

















 


d)            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
payable for such registration of exchange.


 


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 for transfer to the Company
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, in whole or in
part, into shares of Common Stock at the option of the Holder, at any time and
from time to time (subject to the conversion limitations set forth in
Section 4(c) hereof). The Holder shall effect conversions by delivering to
the Company a Notice of Conversion, the form of which is 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
shall be effected (such date, the “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 deemed delivered 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(s) converted and the date of such conversion(s). The Company
may deliver an objection to any Notice of Conversion within 1 Business Day of
delivery of such Notice of Conversion. 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


 


8

















 


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 $0.30, subject to adjustment herein (the “Conversion Price”).


 


c)             Conversion
Limitations. The Company shall not effect any conversion of this Debenture,
and a Holder shall not have the right to convert any portion of this Debenture,
to the extent that after giving effect to the conversion set forth on the
applicable Notice of Conversion, the Holder (together with the Holder’s
Affiliates, and any other person or entity acting as a group together with the
Holder or any of the Holder’s Affiliates) would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below).  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 such
determination is being made, but shall exclude the number of shares of Common
Stock which are issuable upon (A) conversion of the remaining, unconverted
principal amount of this Debenture beneficially owned by the Holder or any of
its Affiliates and (B) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein (including,
without limitation, any other Debentures or the Warrants) 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 and the rules
and regulations promulgated thereunder. To the extent that the limitation
contained in this Section 4(c) applies, the determination of whether this
Debenture is convertible (in relation to other securities owned by the Holder
together with any Affiliates) and of which principal amount of this Debenture
is convertible shall be in the sole discretion of the Holder, and the
submission of a Notice of Conversion shall be deemed to be the Holder’s
determination of whether this Debenture may be converted (in relation to other
securities owned by the Holder together with any Affiliates) and which
principal amount of this Debenture is convertible, in each case subject to the
Beneficial Ownership Limitation. 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. In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. 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 stated in the most
recent of the following: (A) the Company’s most recent Form 10-Q (or 10-QSB) or
Form 10-K (or 10-KSB), as the case may be; (B) a more recent public
announcement by the Company; or (C) a more recent 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 a Holder, the Company
shall within two Trading Days confirm orally and in writing to


 


9

















 


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 “Beneficial
Ownership Limitation” shall be 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares of
Common Stock issuable upon conversion of this Debenture held by the Holder. The
provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 4(c) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give
effect to such limitation. The limitations contained in this paragraph shall
apply to a successor holder of this Debenture.


 


d)             Mechanics
of Conversion.


 


i.              Conversion
Shares Issuable Upon Conversion of Principal Amount. The number of
Conversion Shares 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.


 


ii.             Delivery
of Certificate Upon Conversion. Not later than three Trading Days after
each Conversion Date (the “Share Delivery Date”), the Company shall
deliver, or cause to be delivered, to the Holder (A) a certificate or
certificates representing the Conversion Shares which, on or after the
Effective Date, shall be free of restrictive legends and trading restrictions
(other than those which may then be required by the Purchase Agreement)
representing the number of Conversion Shares 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 Notice 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 has elected or is
required to pay accrued interest in cash). On or after the Effective Date, the
Company shall use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section 4 electronically
through the Depository Trust Company or another established clearing
corporation performing similar functions.


 


10

















 


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 third Trading Day after the Conversion Date, the
Holder shall be entitled to elect by written notice to the Company at any time
on or before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder any
original Debenture delivered to the Company and the Holder shall promptly
return to the Company the Common Stock certificates representing the principal
amount of this Debenture unsuccessfully tendered for conversion to the Company.


 


iv.            Obligation
Absolute; Partial Liquidated Damages. 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 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, that 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 the 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 anyone 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 to Holder, 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 outstanding principal amount of this Debenture,
which is subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the underlying dispute and the proceeds
of which shall be payable to the Holder to the extent it obtains judgment. In
the absence of such injunction, the Company shall issue Conversion Shares or,
if applicable, cash, upon a properly noticed conversion. If the Company fails
for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date,
the Company shall pay to the 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 on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such third
Trading Day until such certificates are delivered. Nothing herein shall limit a
Holder’s right to pursue actual damages or declare an Event of Default pursuant
to Section 8 hereof for the Company’s failure to deliver Conversion Shares
within the period specified herein


 


11

















 


and the Holder
shall have the right to pursue all remedies available to it hereunder, 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 by the
Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
Delivery Date the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise), or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Conversion Shares which the Holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a “Buy-In”), then
the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of shares of Common Stock that the Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) 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 if the Company had timely complied
with its delivery requirements under Section 4(d)(ii). For example, if the
Holder purchases 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 (including any
brokerage commissions) 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 and, upon request of the Company, evidence of the amount of such
loss. Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing shares of Common
Stock upon conversion of this Debenture as required pursuant to the terms
hereof.


 


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 for the sole purpose of issuance upon conversion of this
Debenture and payment of interest on this Debenture, each as


 


12

















 


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 aggregate number of shares of the Common Stock
as shall (subject to the terms and conditions set forth in the Purchase
Agreement) be issuable (taking into account the adjustments 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 authorized, validly
issued, fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public sale in
accordance with such Registration Statement.


 


vii.           Fractional
Shares. No fractional shares or scrip representing fractional shares shall
be issued upon the conversion of this Debenture. As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such conversion, the
Company shall at its election, either pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the Conversion
Price or round up to the next whole share.


 


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 certificates, provided that the Company shall not
be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion
in a name other than that of the Holder of this Debenture 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 payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company upon
conversion of, or payment of interest on, the Debentures); (B) subdivides
outstanding shares of Common Stock into a larger number of shares; (C) combines
(including by way of a reverse stock split) outstanding shares of Common Stock
into a smaller number of shares; or (D) issues, in the event of a
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
any treasury shares of the Company) outstanding immediately before such event
and of which the


 


13

















 


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, at any time while this Debenture is outstanding, the
Company or any Subsidiary, as applicable, sells or grants any option to
purchase or sells or grants any right to reprice, or otherwise disposes of or
issues (or announces any 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 that is lower
than the then Conversion Price (such lower price, the “Base Conversion Price”
and such issuances, collectively, a “Dilutive Issuance”) (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 are issued in connection with such issuance,
be entitled to receive shares of Common Stock at an effective price per share
that is lower 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 the Conversion Price shall be reduced to equal the Base
Conversion Price. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance. If the Company enters into a Variable Rate Transaction, despite the
prohibition set forth in the Purchase Agreement, the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion price at which such securities may be converted or exercised. The
Company shall notify the Holder in writing, no later than 1 Business Day
following the issuance of any Common Stock or Common Stock Equivalents subject
to this Section 5(b), indicating therein the applicable issuance price, or
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,
the Holder is entitled to receive a number of Conversion Shares based upon the
Base Conversion Price on or after the date of such Dilutive Issuance,
regardless of whether the Holder accurately refers to the Base Conversion Price
in the Notice of Conversion.


 


c)             Subsequent
Rights Offerings. If the Company, at any time while the Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares
of Common Stock at a price per share that is lower than the VWAP on the record
date referenced below, then the Conversion Price shall be multiplied by a
fraction of which the denominator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the


 


14

















 


number of
shares of the Common Stock outstanding on the date of issuance of such rights
or warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered (assuming delivery to the Company in full of
all consideration payable upon exercise of such rights, options or warrants)
would purchase at such VWAP. Such adjustment shall be made whenever such rights
or warrants are issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights,
options or warrants.


 


d)            Pro
Rata Distributions. If the Company, at any time while this Debenture is
outstanding, distributes to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security
(other than the Common Stock, which shall be subject to Section 5(b)), 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 1
outstanding share of the Common Stock as determined by the Board of Directors
of the Company in good faith. In either case the adjustments shall be described
in a statement delivered to the Holder describing the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to 1 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.


 


e)             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 transaction 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 1 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 1 share of Common Stock in such Fundamental Transaction, and


 


15

















 


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 issue to the Holder a new debenture consistent
with the foregoing provisions and evidencing the Holder’s right to convert such
debenture into Alternate Consideration. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this
Section 5(e) and insuring that this Debenture (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.


 


f)             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 any treasury shares of the Company) issued and outstanding.


 


g)            Notice
to the Holder.


 


i.              Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 5, the Company shall promptly deliver 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.


 


ii.             Notice
to Allow Conversion by Holder. If (A) the Company shall declare a dividend
(or any other distribution in whatever form) 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 of 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 or (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 delivered to the Holder at
its last address as it shall appear upon the Debenture Register, at least 20
calendar days prior to the


 


16

















 


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 deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day period commencing on the date of such notice through the effective date
of the event triggering such notice.


 


Section 6.               Redemption
and Forced Conversion.


 


a)             Optional
Redemption at Election of Company. Subject to the provisions
of this Section 6, at any time after the Effective Date, the Company may
deliver a notice to the Holder (an “Optional Redemption Notice” and the
date such notice is deemed delivered hereunder, the “Optional Redemption
Notice Date”) of its irrevocable election to redeem some or all of the then
outstanding principal amount of this Debenture for cash in an amount equal to
the Optional Redemption Amount on the 30th Trading Day following the
Optional Redemption Notice Date (such date, the “Optional Redemption Date”
and such redemption, the “Optional Redemption”). The Optional Redemption
Amount is payable in full on the Optional Redemption Date. The Company may only
effect an Optional Redemption if each of the Equity Conditions shall have been
met (unless waived in writing by the Holder) on each Trading Day during the
period commencing on the Optional Redemption Notice Date through to the
Optional Redemption Date and through and including the date payment of the
Optional Redemption Amount is actually made in full. If any of the Equity
Conditions shall cease to be satisfied at any time during the 30 Trading Day
period, then the Holder may elect to nullify the Optional Redemption Notice by
notice to the Company within 3 Trading Days after the first day on which any
such Equity Condition has not been met (provided that if, by a provision of the
Transaction Documents, the Company is obligated to notify the Holder of the
non-existence of an Equity Condition, such notice period shall be extended to
the third Trading Day after proper notice from the Company) in which case the
Optional Redemption Notice shall be null and void, ab  initio. The
Company covenants and agrees that it will honor all Notices of Conversion
tendered from the time of delivery of the Optional Redemption Notice through
the date all amounts owing thereon are due and paid in full. The Company’s
determination to effect an Optional Redemption shall be applied ratably among
the Holders of Debentures.


 


17

















 


b)            Monthly Redemption.
On each Monthly Redemption Date, the Company shall redeem the Monthly
Redemption Amount (the “Monthly Redemption”). The Monthly Redemption
Amount payable on each Monthly Redemption Date shall be paid in cash; provided,
however, as to any Monthly Redemption and upon 10 Trading Days’ prior
written irrevocable notice (the “Monthly Redemption Notice”), in lieu of
a cash redemption payment the Company may elect to pay all or part of a Monthly
Redemption Amount in Conversion Shares based on a conversion price equal to the
lesser of (i) the then Conversion Price and (ii) 88% of the average of the
VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is
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 10 Trading Day period)
(the price calculated during the 10 Trading Day period immediately prior to the
Monthly Redemption Date, the “Monthly Conversion Price” and such 10
Trading Day period, the “Monthly Conversion Period”); provided, further,
that the Company may not pay the Monthly Redemption Amount in Conversion Shares
unless (y) from the date the Holder receives the duly delivered Monthly
Redemption Notice through and until the date such Monthly Redemption is paid in
full, the Equity Conditions have been satisfied, unless waived in writing by
the Holder, and (z) as to such Monthly Redemption, prior to such Monthly
Conversion Period (but not more than 5 Trading Days prior to the commencement
of the Monthly Conversion 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 Amount equal to the
quotient of (x) the applicable Monthly Redemption 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, plus accrued but unpaid interest, liquidated
damages and any other amounts then owing to the Holder 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 Conversion Period until the date the Monthly Redemption
Amount is paid in full shall be first applied to the principal amount subject
to the Monthly Redemption Amount payable in cash and then to the Monthly
Redemption Amount payable in Conversion Shares. Any principal amount of this
Debenture converted during the applicable Monthly Conversion 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 against 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 of the
holders of the then outstanding Debentures based on their (or their predecessor’s)
initial purchases of Debentures pursuant to the Purchase Agreement. At any time
the Company delivers a


 


18

















 


notice to the Holder of its election to pay the
Monthly Redemption Amount in shares of Common Stock, the Company shall file a
prospectus supplement pursuant to Rule 424 disclosing such election.


 


c)             Redemption Procedure. The payment of cash or
issuance of Common Stock, as applicable, pursuant to an Optional and Monthly
Redemption shall be payable on the Optional Redemption Date and Monthly
Redemption Date, as applicable. If any portion of the payment pursuant to an
Optional or Monthly Redemption shall not be paid by the Company by the
applicable due date, interest shall accrue thereon at an interest rate equal to
the lesser of 18% per annum or the maximum rate permitted by applicable law
until such amount is paid in full. Notwithstanding anything herein contained to
the contrary, if any portion of the Optional or Monthly Redemption Amount
remains unpaid after such date, the Holder may elect, by written notice to the
Company given at any time thereafter, to invalidate such Optional or
Monthly Redemption, ab  initio, and, with respect to the Company’s
failure to honor the Optional Redemption, the Company shall have no further
right to exercise such Optional Redemption. Notwithstanding anything to the
contrary in this Section 6, the Company’s determination to redeem in cash or
its elections under Section 6(b) shall be applied ratably among the Holders of
Debentures. The Holder may elect to convert the outstanding principal amount of
the Debenture pursuant to Section 4 prior to actual payment in cash for any
redemption under this Section 6 by the delivery of a Notice of Conversion to
the Company.


 


d)            Forced
Conversion. Notwithstanding anything herein to the contrary,
if after the Effective Date, the VWAP for 20 out of any 30 consecutive Trading
Days, which period shall have commenced only after the Effective Date (such
period the “Threshold Period”), exceeds $0.75 (subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the Original Issue
Date), the Company may, within 1 Trading Day after the end of any such
Threshold Period, deliver a written notice to the Holder (a “Forced
Conversion Notice” and the date such notice is delivered to the Holder, the
“Forced Conversion Notice Date”) to cause the Holder to convert all or
part of the then outstanding principal amount of this Debenture plus, if so
specified in the Forced Conversion Notice, accrued but unpaid interest, liquidated
damages and other amounts owing to the Holder under this Debenture, it being
agreed that the “Conversion Date” for purposes of Section 4 shall be deemed to
occur on the third Trading Day following the Forced Conversion Notice Date
(such third Trading Day, the “Forced Conversion Date”). The Company may
not deliver a Forced Conversion Notice, and any Forced Conversion Notice
delivered by the Company shall not be effective, unless all of the Equity
Conditions are met (unless waived in writing by the Holder) on each Trading Day
occurring during the applicable Threshold Period through and including the
later of the Forced Conversion Date and the Trading Day after the date such
Conversion Shares pursuant to such conversion are delivered to the Holder. Any
Forced Conversion shall be applied ratably to all Holders based on their
initial purchases of Debentures pursuant to the Purchase Agreement, provided
that any voluntary conversions by a Holder shall be applied against the Holder’s
pro rata allocation, thereby decreasing the aggregate amount


 


19

















 


forcibly
converted hereunder if only a portion of this Debenture is forcibly converted. For
purposes of clarification, a Forced Conversion shall be subject to all of the
provisions of Section 4, including, without limitation, the provision requiring
payment of liquidated damages and limitations on conversions.


 


Section 7.               Negative
Covenants. As long as any portion of this Debenture remains outstanding,
unless the holders of at least 75% in principal amount of the then outstanding
Debentures shall have otherwise given prior written consent, the Company shall
not, and shall not permit any of its subsidiaries (whether or not a Subsidiary
on the Original Issue Date) to, directly or indirectly:


 


a)             other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind, including but
not limited to, a guarantee, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or
profits therefrom;


 


b)            other
than Permitted Liens, enter into, create, incur, assume or suffer to exist any
Liens of any kind, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits
therefrom;


 


c)             amend
its charter documents, including, without limitation, its certificate of
incorporation and bylaws, in any manner that materially and adversely affects
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 (a) the Conversion Shares or Warrant Shares as permitted or
required under the Transaction Documents, (b) repurchases of Common Stock or
Common Stock Equivalents of departing officers and directors of the Company,
provided that such repurchases shall not exceed an aggregate of $100,000 for
all officers and directors during the term of this Debenture and (c)
repurchases of Common Stock pursuant to Section 2.1 of that certain agreement for purchase and sale of assets
dated September 17, 2007, among the Company, Innergy Power Corporation
and Portable Energy de Mexico, S.A. DE C.V., as in effect as of the date
hereof;


 


e)             pay
cash dividends or distributions on any equity securities of the Company;


 


f)             enter
into any transaction with any Affiliate of the Company which would be required
to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or


 


g)            enter
into any agreement with respect to any of the foregoing.


 


20

















 


Section 8.               Events
of Default.


 


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


 


i.              any default in the payment
of (A) the principal amount of any Debenture or (B) interest, liquidated
damages and other amounts owing to a Holder on 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 3
Trading Days;


 


ii.             the Company shall fail to
observe or perform any other covenant or agreement contained in the Debentures
(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) 5 Trading Days after notice of such failure sent by the Holder
or by any other Holder and (B) 10 Trading Days after the Company has become or
should have become aware of such failure;


 


iii.            a default or event of
default (subject to any grace or cure period provided 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 is obligated (and not covered by clause
(vi) below);


 


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


 


v.             the Company or any
Significant Subsidiary shall be subject to a Bankruptcy Event;


 


vi.            the Company or any
Subsidiary shall default on 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 that (a) involves an obligation greater than
$150,000, whether such 


 


21

















 


indebtedness now exists or
shall hereafter be created, and (b) results 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 listing or quotation for trading on a Trading Market and shall
not be eligible to resume listing or quotation for trading thereon within five
Trading Days;


 


viii.          the Company shall be a party
to any Change of Control Transaction or Fundamental Transaction or shall agree
to sell or dispose of all or in excess of 33% of its assets in one transaction
or a series of related transactions (whether or not such sale would constitute
a Change of Control Transaction);


 


ix.            the Initial Registration
Statement (as defined in the Registration Rights Agreement) 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), either (a) the
effectiveness of the Registration Statement lapses for any reason or (b) the
Holder shall not be permitted to resell Registrable Securities (as defined in
the Registration Rights Agreement) under the Registration Statement for a
period of more than 20 consecutive Trading Days or 30 non-consecutive Trading
Days during any 12 month period; provided, however, that if 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 pending transaction(s) or
the parties thereto which information is not available or may not be publicly
disclosed at the time, the Company shall be permitted an additional 10 consecutive
Trading Days during any 12 month period pursuant to this Section 8(a)(x);


 


xi.            the Company shall fail for
any reason to deliver certificates to a Holder prior to the fifth Trading Day
after a Conversion Date or any Forced Conversion Date pursuant to Section 4(d)
or the Company shall provide at any time notice to the Holder, including by way
of public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof; or


 


xii.           any monetary judgment, writ
or similar final process shall be entered or filed against the Company, any
subsidiary or any of their respective property or other assets for more than
$50,000, and such judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 45 calendar days.


 


22

















 


b)            Remedies
Upon Event of Default. If any Event of Default occurs, the outstanding
principal amount of this Debenture, plus accrued but unpaid interest,
liquidated damages and other amounts owing in respect thereof through the date
of acceleration, shall become, at the Holder’s election, immediately due and
payable in cash at 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 an interest
rate equal to the lesser of 18% per annum or the maximum rate permitted under
applicable law. Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Debenture to or as directed by the Company.
In connection with such acceleration described herein, 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 acceleration
may be rescinded and annulled by Holder at any time prior to payment hereunder
and the Holder shall have all rights as a holder of the Debenture until such
time, if any, as the Holder receives full payment pursuant to this Section 8(b).
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, or sent by a
nationally recognized overnight courier service, addressed to the Company, at
the address set forth above, or such other facsimile number or address as the
Company may specify for such purpose by notice to the Holder delivered in
accordance with this Section 9. 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, or sent by a nationally recognized
overnight courier service addressed to each Holder at the facsimile number or
address of the Holder appearing on the books of the Company, or if no such
facsimile 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 number
specified in this Section 9 prior to 5:30 p.m. (New York City time), (ii) the
date immediately following the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section 9 between 5:30 p.m. (New York City time) and 11:59 p.m. (New York
City time) on any date, (iii) the second Business Day following the date 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, liquidated damages and
accrued interest, as


 


23

















 


applicable, 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)             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, reasonably satisfactory to the
Company.


 


d)            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 conflict of laws thereof. Each party agrees that
all legal proceedings concerning the interpretation, 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 such New York Courts,
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 other
manner permitted by applicable law. Each party hereto hereby irrevocably waives,
to the fullest 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 in the investigation,
preparation and prosecution of such action or proceeding.


 


e)             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.


 


24

















 


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 by the Company or the Holder
must be in writing.


 


f)             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 the
applicable law governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum rate of interest permitted
under applicable law. 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.


 


g)            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.


 


h)            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.


 


i)              Assumption. 
Any successor to the Company or any surviving entity in a Fundamental
Transaction shall (i) assume, prior to such Fundamental Transaction, 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) and (ii)
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 amount and the interest rate of this
Debenture and having similar ranking to this Debenture, which shall be
satisfactory to the Holder (any such approval not to be unreasonably withheld or
delayed).  The provisions of this Section 9(i) shall apply similarly and
equally to successive Fundamental Transactions and shall be applied without
regard to any limitations of this Debenture.


 


25

















 


j)              Secured
Obligation. The obligations of the Company under this Debenture are secured
by all assets of the Company and each Subsidiary pursuant to the Security
Agreement, dated as of November 6, 2007 between the Company, the Subsidiaries
of the Company and the Secured Parties (as defined therein).


 


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


 


26

















 


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.


 


	
   

  	
  ECOTALITY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
  Facsimile No. for delivery of Notices:

  
	
   

  	
   

  



 


27

















 


ANNEX A


NOTICE OF CONVERSION


 


The
undersigned hereby elects to convert principal under the Original Issue
Discount 8% Secured Convertible Debenture due May       ,
2010 of Ecotality, Inc., a Nevada corporation (the “Company”), into shares of common stock (the “Common
Stock”), of the Company according to the conditions hereof, as of the date
written below. If shares of Common Stock 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 specified under Section 4 of this Debenture, as determined in
accordance with Section 13(d) of the Exchange Act.


 


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 o
  yes o no

  
	
   

  	
   

  	
  If yes, $        of
  Interest Accrued on Account of Conversion at Issue.

  
	
   

  	
   

  
	
   

  	
  Number of
  shares of Common Stock to be issued:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
   

  
	
   

  	
  Address for
  Delivery of Common Stock Certificates:

  
	
   

  	
   

  
	
   

  	
  Or

  
	
   

  	
   

  
	
   

  	
  DWAC
  Instructions:

  
	
   

  	
   

  
	
   

  	
  Broker No:

  
	
   

  	
  Account No:

  



 


28

















 


Schedule 1


 


CONVERSION SCHEDULE


 


The Original Issue Discount 8% Secured Convertible Debentures due
on May       , 2010 in the aggregate principal
amount of $             
are issued by Ecotality, Inc. This Conversion Schedule reflects conversions
made under Section 4 of the above referenced Debenture.


 


Dated:


 


	
  Date of Conversion

  (or for first entry,

  Original Issue Date)

  	
   

  	
  Amount
  of

  Conversion

  	
   

  	
  Aggregate

  Principal

  Amount

  Remaining

  Subsequent to

  Conversion

  (or original

  Principal

  Amount)

  	
   

  	
  Company
  Attest

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


29