**Exhibit 10.61**

 

**THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE“ACT”). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OFCOUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT.**

 

**CONVERTIBLE DEBENTURE**

 

 

**FOR VALUERECEIVED**,**LITHIUM TECHNOLOGY CORPORATION**, a Delaware corporation (hereinafter called the “**Borrower**”), hereby promises to pay to the order of ARCH HILL CAPITAL, N.V. or registered assigns (the “**Holder**”)the sum of Three Million Dollars ($3,000,000), on April 13, 2006 (the **“Maturity Date**”), and to pay interest on the unpaid principal balance hereof at the rate of ten percent (10%) per annum from April 13, 2004 (the “**IssueDate**”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or interest on this Debenture which is not paid when due shall bear interest at the rate offifteen percent (15%) per annum from the due date thereof until the same is paid (“**Default Interest**”). Interest shall commence accruing on the issue date, shall be computed on the basis of a 365-day year and the actual number ofdays elapsed and shall be payable, at the option of the Holder, either quarterly on, March 31, June 30, September 30 and December 31 of each year beginning on June 30, 2004, or at the time of conversion of the principal to which such interestrelates in accordance with Article I below. All payments due hereunder (to the extent not converted into common stock, $.01 par value per share, of the Borrower (the “**Common Stock**”) in accordance with the terms hereof) shall be madein lawful money of the United States of America or, at the option of the Borrower, in whole or in part, in shares of Common Stock of the Borrower valued at the then applicable Conversion Price (as defined herein). All payments shall be made at suchaddress as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Debenture. Whenever any amount expressed to be due by the terms of this Debenture is due on any day which is not a businessday, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Debenture is paid in full, the extension of the due date thereof shall not betaken into account for purposes of determining the amount of interest due on such date. As used in this 

Debenture, the term “business day” shall mean any day other than a Saturday, Sunday or a day on whichcommercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain DebtExchange Agreement, dated April 13, 2004, pursuant to which this Debenture was originally issued (the “**Debt Exchange Agreement**”). 

 

This Debenture is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights orother similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof. 

 

The following terms shall apply to this Debenture: 

 

**ARTICLE I. CONVERSION RIGHTS**

 

**1.1 Conversion Right.** The Holder shall have the right from time to time, and at any time on or prior to the earlier of (i) the Maturity Dateand (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional Prepayment Amount (as defined in Section 5.1) or any payments pursuant to Section 1.7, each in respect of theremaining outstanding principal amount of this Debenture to convert all or any part of the outstanding and unpaid principal amount of this Debenture into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the IssueDate, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “**Conversion Price**”) determined as provided herein (a“**Conversion**”). The number of shares of Common Stock to be issued upon each conversion of this Debenture shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect onthe date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “**Notice of Conversion**”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice ofConversion is submitted by facsimile (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “**Conversion Date**”). The term“**Conversion Amount**” means, with respect to any conversion of this Debenture, the sum of (1) the principal amount of this Debenture to be converted in such conversion plus (2) accrued and unpaid interest, if any, on suchprincipal amount at the interest rates provided in this Debenture to the Conversion Date plus (3) Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2). 

 

**1.2 Conversion Price.**

 

**(a) Calculation of Conversion Price.**The Conversion Priceshall be the lesser of (i) the Variable Conversion Price (as defined herein) and (ii) the Fixed Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by theBorrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, 

 

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extraordinary distributions and similar events). The “**Variable Conversion Price**” shall mean theApplicable Percentage (as defined herein) multiplied by the Market Price (as defined herein). “**Market Price**” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the twenty (20)Trading Day (as defined below) period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile (the “**Conversion Date**”). “**Trading Price**” means, for anysecurity as of any date, the intraday trading price on the Over-the-Counter Bulletin Board (the “**OTCBB**”) as reported by a reliable reporting service mutually acceptable to and hereafter designated by Holders of a majority ininterest of the Debentures and the Borrower or, if the OTCBB is not the principal trading market for such security, the intraday trading price of such security on the principal securities exchange or trading market where such security is listed ortraded or, if no intraday trading price of such security is available in any of the foregoing manners, the average of the intraday trading prices of any market makers for such security that are listed in the “pink sheets” by the NationalQuotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority ininterest of the Debentures being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Debentures. “**Trading Day**” shall mean any day on which the Common Stock istraded for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. “**Applicable Percentage**” shall mean 50.0%. The “**Fixed ConversionPrice**” shall mean $2.00. 

 

**(b) Conversion PriceDuring Major Announcements.**Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than amerger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower)publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “**AnnouncementDate**”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have beenapplicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth inthis Section 1.2(a). For purposes hereof, “**Adjusted Conversion Price Termination Date**” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by thisSection 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposedtransaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative. 

 

**1.3 Authorized Shares.** The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from itsauthorized and unissued Common 

 

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Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon thefull conversion of this Debenture and the other Debentures issued pursuant to the Debt Exchange Agreement. The Borrower is required at all times to have authorized and reserved two times the number of shares that is actually issuable upon fullconversion of the Debentures (based on the Conversion Price of the Debentures in effect from time to time) (the “**Reserved Amount**”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’sobligations pursuant to Section 4(b) of the Debt Exchange Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities ormake any change to its capital structure which would change the number of shares of Common Stock into which the Debentures shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so thatthereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Debentures. The Borrower (i) acknowledges that it has irrevocably instructed its transferagent to issue certificates for the Common Stock issuable upon conversion of this Debenture, and (ii) agrees that its issuance of this Debenture shall constitute full authority to its officers and agents who are charged with the duty of executingstock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Debenture. 

 

If, at any time a Holder of this Debenture submits a Notice of Conversion, and the Borrower does not have sufficient authorized but unissued shares ofCommon Stock available to effect such conversion in accordance with the provisions of this Article I (a “**Conversion Default**”), subject to Section 4.8, the Borrower shall issue to the Holder all of the shares of Common Stock whichare then available to effect such conversion. The portion of this Debenture which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the “**ExcessAmount**”) shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder’s option at any time after) the date additional shares ofCommon Stock are authorized by the Borrower to permit such conversion, at which time the Conversion Price in respect thereof shall be the lesser of (i) the Conversion Price on the Conversion Default Date (as defined below) and (ii) the ConversionPrice on the Conversion Date thereafter elected by the Holder in respect thereof. In addition, the Borrower shall pay to the Holder payments (“**Conversion Default Payments**”) for a Conversion Default in the amount of (x) the sumof (1) the then outstanding principal amount of this Debenture plus (2) accrued and unpaid interest on the unpaid principal amount of this Debenture through the Authorization Date (as defined below) plus (3) Default Interest, ifany, on the amounts referred to in clauses (1) and/or (2), multiplied by (y) .24, multiplied by (z) (N/365), where N = the number of days from the day the holder submits a Notice of Conversion giving rise to a Conversion Default (the“**Conversion Default Date**”) to the date (the “**Authorization Date**”) that the Borrower authorizes a sufficient number of shares of Common Stock to effect conversion of the full outstanding principal balance of thisDebenture. The Borrower shall use its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Borrower or that the Borrower otherwise becomesaware that there are or likely will be insufficient authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default. The Borrower 

 

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shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and theamount of Holder’s accrued Conversion Default Payments. The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock (at such time as there are sufficient authorized shares ofCommon Stock) at the applicable Conversion Price, at the Borrower’s option, as follows: 

 

**(a)**In the event Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth (5th) day of the month following the month in which it has accrued; and 

 

**(b)**In the event Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at theConversion Price (as in effect at the time of conversion) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms of this Article I (so long as there is then a sufficient number ofauthorized shares of Common Stock). 

 

The Holder’s electionshall be made in writing to the Borrower at any time prior to 6:00 p.m., New York, New York time, on the third day of the month following the month in which Conversion Default payments have accrued. If no election is made, the Holder shall be deemedto have elected to receive cash. Nothing herein shall limit the Holder’s right to pursue actual damages (to the extent in excess of the Conversion Default Payments) for the Borrower’s failure to maintain a sufficient number of authorizedshares of Common Stock, and each holder shall have the right to pursue all remedies available at law or in equity (including degree of specific performance and/or injunctive relief). 

 

**1.4 Method of Conversion.**

 

**(a) Mechanics of Conversion.**Subject to Section 1.1, this Debenture may be converted by the Holder in wholeor in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New Yorktime) and (B) subject to Section 1.4(b), surrendering this Debenture at the principal office of the Borrower. 

 

**(b) Surrender of Debenture Upon Conversion.**Notwithstanding anything to the contrary set forth herein, upon conversion of this Debenture inaccordance with the terms hereof, the Holder shall not be required to physically surrender this Debenture to the Borrower unless the entire unpaid principal amount of this Debenture is so converted. The Holder and the Borrower shall maintain recordsshowing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Debenture upon each such conversion.In the event of any dispute or discrepancy, such records of the Borrower shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Debenture is converted as aforesaid, the Holdermay not transfer this Debenture except in accordance with the terms hereof and the Debt Exchange Agreement and unless the Holder first physically surrenders this Debenture to the Borrower, whereupon the Borrower will forthwith issue and deliver uponthe order of the Holder a new Debenture of like 

 

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tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representingin the aggregate the remaining unpaid principal amount of this Debenture. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion ofthis Debenture, the unpaid and unconverted principal amount of this Debenture represented by this Debenture may be less than the amount stated on the face hereof. 

 

**(c) Payment of Taxes.**The Borrower shall not be required to pay any tax which may be payable in respect ofany transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Debenture in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue ordeliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereofshall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid. 

 

**(d) Delivery of Common Stock Upon Conversion.**Upon receipt by the Borrower from the Holder of a facsimile transmission (or other reasonablemeans of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates forthe Common Stock issuable upon such conversion within three (3) business days after such receipt (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Debenture) (such third business day beinghereinafter referred to as the “**Deadline**”) in accordance with the terms hereof and the Debt Exchange Agreement (including, without limitation, in accordance with the requirements of Section 2(g) of the Debt Exchange Agreement thatcertificates for shares of Common Stock issued on or after the effective date of the Registration Statement upon conversion of this Debenture shall not bear any restrictive legend). 

 

**(e) Obligation of Borrower to Deliver Common Stock.** Upon receipt by the Borrower of a Notice of Conversion,the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Debenture shall be reduced to reflect such conversion,and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Debenture being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cashor other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute andunconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failureor delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, andirrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long asthe Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date. 

 

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**(f) Delivery of Common Stock by Electronic Transfer.**In lieu of delivering physicalcertificates representing the Common Stock issuable upon conversion, provided the Borrower’s transfer agent is participating in the Depository Trust Company (“**DTC**”) Fast Automated Securities Transfer (“**FAST**”)program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuableupon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“**DWAC**”) system. 

 

**1.5 Concerning the Shares.** The shares of Common Stock issuable upon conversion of this Debenture may not besold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form,substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold ortransferred pursuant to Rule 144 under the Act (or a successor rule) (“**Rule 144**”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer theshares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Debt Exchange Agreement). Except as otherwise provided in the Debt Exchange Agreement (and subject to the removal provisions set forth below), untilsuch time as the shares of Common Stock issuable upon conversion of this Debenture have been registered under the Act may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then beimmediately sold, each certificate for shares of Common Stock issuable upon conversion of this Debenture that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statementor an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate: 

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BESOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THATREGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT.” 

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefor free of any transfer legend if (i) theBorrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be madewithout registration under the Act and the shares are so sold or 

 

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transferred, (ii) such Holder provides the Borrower or its transfer agent with reasonable assurances that the CommonStock issuable upon conversion of this Debenture (to the extent such securities are deemed to have been acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock issuable upon conversion of this Debenture,such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that canthen be immediately sold. Nothing in this Debenture shall affect in any way the Holder’s obligations to comply with federal and state securities laws, including applicable prospectus delivery requirements upon the resale of the securitiesreferred to herein. 

 

**1.6 Effect of CertainEvents.**

 

**(a) Effect of Merger, Consolidation,Etc.** At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% ofthe voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemedto be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in ArticleIII) or (ii) be treated pursuant to Section 1.6(b) hereof. “**Person**” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization. 

 

**(b) Adjustment Due to Merger, Consolidation, Etc.**If, at anytime when this Debenture is issued and outstanding and prior to conversion of all of the Debentures, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which sharesof Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all ofthe assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Debenture shall thereafter have the right to receive upon conversion of this Debenture, upon the basis and upon theterms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had thisDebenture been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of theHolder of this Debenture to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Debenture) shall thereafter be applicable,as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not effect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extentpracticable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, suchmerger, consolidation, exchange of shares, 

 

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recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitledto convert this Debenture) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations,mergers, sales, transfers or share exchanges. 

 

**(c)Adjustment Due to Distribution.**If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise(including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “**Distribution**”), then the Holder of this Debentureshall be entitled, upon any conversion of this Debenture after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the sharesof Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. 

 

**(d) Adjustment Due to Dilutive Issuance.** If, at any time whenany Debentures are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (beforededuction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Fixed Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a“**Dilutive Issuance**”), then immediately upon the Dilutive Issuance, the Fixed Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance; provided that onlyone adjustment will be made for each Dilutive Issuance. 

 

TheBorrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or othersecurities convertible into or exchangeable for Common Stock (“**Convertible Securities**”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “**Options**”)and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Fixed Conversion Price then in effect, then the Fixed Conversion Price shall be equal to such price per share. For purposes of thepreceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuanceor granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of suchOptions, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of CommonStock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise ofsuch Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options. 

 

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Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrowerin any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversionor exchange is less than the Fixed Conversion Price then in effect, then the Fixed Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable uponsuch conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount ofadditional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuableupon the conversion or exchange of all such Convertible Securities. No further adjustment to the Fixed Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

**(e) Purchase Rights.**If, at any time when anyDebentures are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “**Purchase Rights**”) pro rata to the record holders of any class of CommonStock, then the Holder of this Debenture will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stockacquirable upon complete conversion of this Debenture (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no suchrecord 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. 

 

**(f) Notice of Adjustments.**Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the eventsdescribed in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a certificate setting forth such adjustment or readjustment and showing in detail the factsupon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price atthe time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Debenture. 

 

**1.7 Trading Market Limitations.**Unless permitted or notprohibited by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Debenture and the otherDebentures issued pursuant to the Debt Exchange Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common 

 

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Stock is then traded (the “**Maximum Share Amount**”). Once the Maximum Share Amount has been issued (thedate of which is hereinafter referred to as the “**Maximum Conversion Date**”), if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system orother self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount (a “**Trading Market PrepaymentEvent**”), in lieu of any further right to convert this Debenture, and in full satisfaction of the Borrower’s obligations under this Debenture, the Borrower shall pay to the Holder, within fifteen (15) business days of the MaximumConversion Date (the “**Trading Market Prepayment Date**”), an amount equal to 130% times the sum of (a) the then outstanding principal amount of this Debenture immediately following the Maximum Conversion Date,plus (b) accrued and unpaid interest on the unpaid principal amount of this Debenture to the Trading Market Prepayment Date, plus (c) Default Interest, if any, on the amounts referred to in clause (a) and/or (b) above, plus (d)any optional amounts that may be added thereto at the Maximum Conversion Date by the Holder in accordance with the terms hereof (the then outstanding principal amount of this Debenture immediately following the Maximum Conversion Date, plusthe amounts referred to in clauses (b), (c) and (d) above shall collectively be referred to as the “**Remaining Convertible Amount**”). With respect to each Holder of Debentures, the Maximum Share Amount shall refer to suchHolder’s prorata share thereof determined in accordance with Section 4.8 below. In the event that the sum of (x) the aggregate number of shares of Common Stock issued upon conversion of this Debenture and the other Debenturesissued pursuant to the Debt Exchange Agreement plus (y) the aggregate number of shares of Common Stock that remain issuable upon conversion of this Debenture and the other Debentures issued pursuant to the Debt Exchange Agreement, representsat least one hundred percent (100%) of the Maximum Share Amount (the “**Triggering Event**”), the Borrower will use its best efforts to seek and obtain Shareholder Approval (or obtain such other relief as will allow conversionshereunder in excess of the Maximum Share Amount) as soon as practicable following the Triggering Event and before the Maximum Conversion Date. As used herein, “**Shareholder Approval**” means approval by the shareholders of the Borrowerto authorize the issuance of the full number of shares of Common Stock which would be issuable upon full conversion of the then outstanding Debentures but for the Maximum Share Amount. 

 

**1.8 Status as Shareholder.**Upon submission of a Notice of Conversion by a Holder, (i) the shares coveredthereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii)the Holder’s rights as a Holder of such converted portion of this Debenture shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise availableat law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Debenture. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th)business day after the expiration of the Deadline with respect to a conversion of any portion of this Debenture for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower)the Holder shall regain the rights of a Holder of this Debenture with respect to such unconverted portions of this Debenture and the Borrower shall, as soon as practicable, return such unconverted 

 

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Debenture to the Holder or, if the Debenture has not been surrendered, adjust its records to reflect that such portion ofthis Debenture has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required therebyfor such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert thisDebenture. 

 

**ARTICLE II. CERTAIN COVENANTS**

 

**2.1 Distributions on Capital Stock.** So long as the Borrowershall have any obligation under this Debenture, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) onshares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capitalstock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors. 

 

**2.2 Restriction on Stock Repurchases.** So long as the Borrower shall have any obligation under this Debenture, the Borrower shall not withoutthe Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of theBorrower or any warrants, rights or options to purchase or acquire any such shares. 

 

**2.3 Sale of Assets.** So long as the Borrower shall have any obligation under this Debenture, the Borrower shall not, without the Holder’s written consent sell, lease or otherwise dispose of anysignificant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition. 

 

**2.4 Contingent Liabilities.** So long as the Borrower shall haveany obligation under this Debenture, the Borrower shall not, without the Holder’s written consent assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, jointventure or corporation, except by the endorsement of negotiable instruments for deposit or collection and except assumptions, guarantees, endorsements and contingencies (a) in existence or committed on the date hereof and which the Borrower hasinformed Holder in writing prior to the date hereof, (b) similar transactions in the ordinary course of business or (c) not in excess of $50,000. 

 

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**ARTICLE III. EVENTS OF DEFAULT**

 

If any of the following events of default (each, an “**Event of Default**”) shall occur: 

 

**3.1 Failure to Pay Principal or Interest.** The Borrower failsto pay the principal hereof or interest thereon when due on this Debenture, whether at maturity, upon a Trading Market Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise; 

 

**3.2 Conversion and the Shares.** The Borrower fails to issueshares of Common Stock to the Holder (or announces or threatens that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Debenture (for a period of atleast sixty (60) days, if such failure is solely as a result of the circumstances governed by Section 1.3 and the Borrower is using its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable), fails totransfer or cause its transfer agent to transfer (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Debenture as and when required by thisDebenture, or the Debt Exchange Agreement, or fails to remove any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of orotherwise pursuant to this Debenture as and when required by this Debenture or, the Debt Exchange Agreement (or makes any announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any suchfailure shall continue uncured (or any announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for ten (10) days after the Borrower shall have been notified thereof in writing by the Holder; 

 

**3.3 Breach of Covenants.** The Borrower breaches any materialcovenant or other material term or condition contained in this Debenture, or Sections 4(c), 4(e), 4(f) or 5 of the Debt Exchange Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from theHolder; 

 

**3.4 Breach of Representations andWarranties.** Any representation or warranty of the Borrower made herein or in any agreement executed in connection herewith (including, without limitation, the Debt Exchange Agreement), shall be false or misleading in any material respectwhen made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Debenture or the Debt Exchange Agreement; 

 

**3.5 Receiver or Trustee.** The Borrower or any subsidiary of theBorrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise beappointed; 

 

**3.6 Judgments.** Any money judgment,writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of thirty (30) daysunless otherwise consented to by the Holder, which consent will not be unreasonably withheld; 

 

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**3.7 Bankruptcy.** Bankruptcy, insolvency, reorganization or liquidation proceedings or otherproceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower which remains unvacated, unbonded or unstayed for a period of thirty (30) days;

 

**3.8 Delisting of Common Stock.** The Borrowershall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange; or

 

**3.9 Default Under Other Debentures.** An Event ofDefault has occurred and is continuing under any of the other Debentures issued pursuant to the Debt Exchange Agreement, then, upon the occurrence and during the continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7,3.9, or 3.10, at the option of the Holders of a majority of the aggregate principal amount of the outstanding Debentures issued pursuant to the Debt Exchange Agreement exercisable through the delivery of written notice to the Borrower by suchHolders (the “**Default Notice**”), and upon the occurrence of an Event of Default specified in Section 3.6 or 3.8, the Debentures shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfactionof its obligations hereunder, an amount equal to the greater of (i) 130% times the sum of (w) the then outstanding principal amount of this Debenture plus (x) accrued and unpaid interest on the unpaid principal amount of thisDebenture to the date of payment (the “**Mandatory Prepayment Date**”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections1.3 and 1.4(g) hereof (the then outstanding principal amount of this Debenture to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “**Default Sum**”) or (ii) the“parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating theTrading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specificConversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and endingone day prior to the Mandatory Prepayment Date (the “**Default Amount**”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expresslywaived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. If the Borrower fails to pay theDefault Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficientauthorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

 

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**ARTICLE IV. MISCELLANEOUS**

 

**4.1 Failure or Indulgence Not Waiver.** No failure or delay on the part of the Holder in the exercise of anypower, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rightsand remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 

 

**4.2 Notices.** Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier orsent by United States mail and shall be deemed to have been given upon receipt if personally served (which shall include telephone line facsimile transmission) or sent by courier or three (3) days after being deposited in the United States mail,certified, with postage pre-paid and properly addressed, if sent by mail. For the purposes hereof, the address of the Holder shall be as shown on the records of the Borrower; and the address of the Borrower shall be 5115 Campus Drive, PlymouthMeeting, Pennsylvania 19462, facsimile number: 610-940-6091. Both the Holder and the Borrower may change the address for service by service of written notice to the other as herein provided. 

 

**4.3 Amendments.** This Debenture and any provision hereof mayonly be amended by an instrument in writing signed by the Borrower and the Holder. The term “Debenture” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Debentures issued pursuant tothe Debt Exchange Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented. 

 

**4.4 Assignability.** This Debenture shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit ofthe Holder and its successors and assigns. Each transferee of this Debenture must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Debenture to the contrary, this Debenture may bepledged as collateral in connection with a bonafide margin account or other lending arrangement, subject to all applicable federal and state securities laws. 

 

**4.5 Cost of Collection.** If default is made in the payment of this Debenture, the Borrower shall pay the Holderhereof costs of collection, including reasonable attorneys’ fees. 

 

**4.6 Governing Law.** THIS DEBENTURE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARDTO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS DEBENTURE, THE AGREEMENTS ENTERED INTOIN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE 

 

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THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OFPROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT ORPROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS DEBENTURE SHALL BE RESPONSIBLE FOR ALL FEES ANDEXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE. 

 

**4.7 Certain Amounts.** Whenever pursuant to this Debenture the Borrower is required to pay an amount in excess of the outstanding principalamount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment onthis Debenture may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Debenture and toearn a return from the sale of shares of Common Stock acquired upon conversion of this Debenture at a price in excess of the price paid for such shares pursuant to this Debenture. The Borrower and the Holder hereby agree that such amount ofstipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Debenture into shares of Common Stock. 

 

**4.8 Allocations of Maximum Share Amount and Reserved Amount.**The Maximum Share Amount and Reserved Amount shall be allocated pro rata among the Holders of Debentures based on the principal amount of such Debentures issued to each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall beallocated pro rata among the Holders of Debentures based on the principal amount of such Debentures held by each Holder at the time of the increase in the Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or otherwisetransfer any of such Holder’s Debentures, each transferee shall be allocated a pro rata portion of such transferor’s Maximum Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount which remainsallocated to any person or entity which does not hold any Debentures shall be allocated to the remaining Holders of Debentures, pro rata based on the principal amount of such Debentures then held by such Holders. 

 

**4.9 Denominations.** At the request of the Holder, upon surrenderof this Debenture, the Borrower shall promptly issue new Debentures in the aggregate outstanding principal amount hereof, in the form hereof, in such denominations of at least $50,000 as the Holder shall request. 

 

**4.10 Debt Exchange Agreement.** By its acceptance of thisDebenture, each Holder agrees to be bound by the applicable terms of the Debt Exchange Agreement. 

 

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**4.11 Security Interest.**Upon the repayment or conversion in full of the Borrower’s 10%Secured Convertible Debentures dated January 20, 2004, the Borrower shall grant to the Holder a security interest in all of the assets of the Borrower and its subsidiaries to secure the obligations under this Debenture. 

 

**4.12 Notice of Corporate Events.** Except as otherwise providedbelow, the Holder of this Debenture shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Debenture into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of theBorrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled toreceive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities orproperty, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposedliquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event,whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or otherevent to the extent known at such time. The Borrower shall make a public announcement of, or filing with respect to, any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder inaccordance with the terms of this Section 4.12. 

 

**4.13Remedies.** The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borroweracknowledges that the remedy at law for a breach of its obligations under this Debenture will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Debenture, that the Holder shall beentitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Debenture and to enforce specificallythe terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required. 

 

**ARTICLE V. OPTIONAL PREPAYMENT**

 

**5.1 Optional Prepayment.** Notwithstanding anything to the contrary contained in this Article V, the Borrower shall have the right,exercisable on not less than ten (10) Trading Days prior written notice to the Holders of the Debentures, to prepay all of the outstanding Debentures in accordance with this Section 5.1. Any notice of prepayment hereunder (an “**OptionalPrepayment**”) shall be delivered to the Holders of the Debentures at their registered addresses appearing on the books and records of the Borrower and shall state 

 

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(1) that the Borrower is exercising its right to prepay all or any portion of the Debentures issued on the Issue Date tothe Holders on a pro rata basis, (2) the amount of the Debentures to be prepaid and (3) the date of prepayment (the “**Optional Prepayment Notice**”). On the date fixed for prepayment (the “**Optional Prepayment Date**”),the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holders as specified by the Holders in writing to the Borrower at least two (2) business days prior to the Optional Prepayment Date. Ifthe Borrower exercises its right to prepay the Debentures, the Borrower shall make payment to the holders of an amount in cash (the “**Optional Prepayment Amount**”) equal to either (i) 130% (for prepayments occurring within sixty (60)days of the Issue Date), (ii) 140% for prepayments occurring between sixty-one (61) and ninety (90) days of the Issue Date, or (iii) 150% (for prepayments occurring after the ninetieth (90th) day following the Issue Date), multiplied by the sum of (w) the then outstanding principal amount of this Debenture to be prepaid plus (x) accrued andunpaid interest on the unpaid principal amount of this Debenture to be prepaid to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holderpursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Debenture to be prepaid plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “**Optional PrepaymentSum**”). Notwithstanding notice of an Optional Prepayment, the Holders shall at all times prior to the Optional Prepayment Date maintain the right to convert all or any portion of the Debentures in accordance with Article I and any portion ofDebentures so converted after receipt of an Optional Prepayment Notice and prior to the Optional Prepayment Date set forth in such notice and payment of the aggregate Optional Prepayment Amount shall be deducted from the principal amount ofDebentures which are otherwise subject to prepayment pursuant to such notice. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holders of the Debentures within two (2) business daysfollowing the Optional Prepayment Date, the Borrower shall forever forfeit its right to redeem the Debentures pursuant to this Section 5.1. 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 

 

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**IN WITNESS WHEREOF**, Borrower has caused this Debenture to be signed in its name by its dulyauthorized officer this 13th day of April, 2004. 

 
**LITHIUM TECHNOLOGY CORPORATION**By: 
/s/    Franz Kruger
  Franz Kruger  Chief Executive Officer
 

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**EXHIBIT A**

 

**NOTICE OF CONVERSION**

(To be Executedby the Registered Holder 

in order to Convert the Debentures) 

 

The undersigned hereby irrevocably elects to convert$             principal amount of the Debenture (defined below) into shares of common stock, par value $.01 per share (“**Common Stock**”), of Lithium TechnologyCorporation, a Delaware corporation (the “**Borrower**”) according to the conditions of the convertible debentures of the Borrower dated as of April 13, 2004 (the “Debentures”), as of the date written below. If securities areto 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. No fee will be charged to the Holder for any conversion, exceptfor transfer taxes, if any. A copy of each Debenture is attached hereto (or evidence of loss, theft or destruction thereof). 

 

If available, the Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersignedor its nominee with DTC through its Deposit Withdrawal Agent Commission system (“**DWAC Transfer**”). 

 
Name of DTC Prime Broker: 
 

Account Number:

 

In lieu of receivingshares of Common Stock issuable pursuant to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (whichnumbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: 

 
Name: 
 
Address: 
 

 

The undersignedrepresents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Debentures shall be made pursuant to registration of the securities under the Securities Act of 1933, asamended (the “**Act**”), or pursuant to an exemption from registration under the Act. 

 
Date of Conversion: 
 
Applicable Conversion Price: 
 
Number of Shares of Common Stock to be Issued Pursuant toConversion of the Debentures: 
 

 
Signature: 
 
Name: 
 
Address: 
 

 

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The Borrower shall issue and deliver shares of Common Stock to an overnight courier not later than three (3) businessdays following receipt of the original Debenture(s) to be converted, and shall make any applicable payments pursuant to the Debentures for the number of business days such issuance and delivery is late. 

 

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