Document:

Unassociated Document

    Exhibit
      10.24

     

    SETTLEMENT
      AGREEMENT AND RELEASE

     

    This
      Settlement Agreement and Release (the "Agreement") is dated as of March 24,
      2006
      and is made by and between ALPHA CAPITAL AKTIENGESELLSCHAFT, WHALEHAVEN CAPITAL
      FUND LIMITED, and ELLIS INTERNATIONAL LTD. (collectively the "Investors") and
      Hybrid Fuel Systems, Inc., a Georgia corporation ("Hybrid").

     

    WHEREAS,
      Hybrid, issued to the Investors an aggregate of $600,000.00 principal amount
      promissory notes pursuant to the Subscription Agreement dated on or about March
      31, 2005 (collectively the "Debentures");

     

    WHEREAS,
      Hybrid desires to redeem all outstanding Debentures, including interest and
      liquidated damages ("Remaining Debentures") in accordance with the terms and
      conditions hereof; and

     

    NOW,
      THEREFORE, in consideration of the mutual conditions and covenants contained
      in
      this Agreement, and for other good and valuable consideration, the sufficiency
      and receipt of which is hereby acknowledged, it is hereby stipulated, consented
      to and agreed by and among the Investors and Hybrid as follows:

     

    1.
      (a) On
      or before March 28, 2006, in full satisfaction of the Remaining Debentures
      Hybrid shall (i) pay to the Investors an aggregate of $541,542.00 (the "Funds")
      as set forth on Exhibit A hereto, by wire transfer to the bank and account
      as
      set forth on Exhibit A hereto, and (ii) reduce the exercise price to $0.19
      per
      share for the warrants on the attached Exhibit B. Each Investor, individually,
      hereby agrees that they will not exercise or sell more than sixty-seven thousand
      five hundred (67,500) shares underlying the Warrant in any thirty (30) day
      period unless Hybrid's common stock is trading above forty cents ($0.40) per
      share. Upon receipt of the Funds, the Investors shall return, via overnight
      delivery, the Remaining Debentures to Hybrid. The Company agrees to file all
      necessary paperwork with the SEC, including any post-effective amendments,
      for
      the Investors within seven (7) days. The Company shall agree to abide by all
      terms and conditions in the original Warrant with respect to registration and
      issuance of shares underlying the Warrant.

     

    2.
      In
      consideration of the foregoing, upon receipt by the Investors, or their agent,
      of the Funds, except in connection with third party indemnification, the
      Investors release and discharge Hybrid, Hybrid's officers, directors,
      principals, control persons, past and present employees, insurers, successors,
      agents and assigns ("Hybrid Parties") from all actions, cause of action, suits,
      debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties,
      covenants, contracts, controversies, agreements, promises, variances,
      trespasses, damages, judgments, extents, executions, claims, and demands
      whatsoever, in law, admiralty or equity, which against Hybrid Parties ever
      had,
      now have or hereafter can, shall or may, have for, upon, or by reason of any
      matter, cause or thing whatsoever, whether or not known or unknown, from the
      beginning of the world to the day of the date of this Release arising under
      the
      Debentures and Subscription Agreement dated on or about March 31, 2005. In
      addition, all security interests, mortgages and other liens, if any, which
      Hybrid may have granted to Investors shall automatically be released and
      terminated. Investors authorize Hybrid, or its designees, to file Uniform
      Commercial Code financing statement amendments evidencing the release and
      termination of Investor's liens in any assets or properties of
      Hybrid.

     

    3.
      In
      consideration of the foregoing, Hybrid releases and discharges Investors,
      Investors' officers, directors, principals, control persons, past and present
      employees, insurers, successors, agents and assigns ("Investors Parties") from
      all actions, cause of action, suits, debts, dues, sums of money, accounts,
      reckonings, bonds, bills, specialties, covenants, contracts, controversies,
      agreements, promises, variances, trespasses, damages, judgments, extents,
      executions, claims, and demands whatsoever, in law, admiralty or equity, which
      against Investors Parties ever had, now have or hereafter can, shall or may,
      have for, upon, or by reason of any matter, cause or thing whatsoever, whether
      or not known or unknown, from the beginning of the world to the day of the
      date
      of this Release arising under the Debentures and Subscription Agreement dated
      on
      or about March 31, 2005.

     

    4.
      Hybrid
      and the Investors each understand and agree that this Agreement (including
      all
      of its terms) is forever deemed confidential between them. Except as required
      under the statutes, rules or regulations of any federal or state government,
      government agency or court of competent jurisdiction, each of Hybrid and the
      Investors, and their respective counsel, shall not disclose or divulge any
      of
      the matters underlying this Agreement, or any of the terms or substance of
      this
      Agreement to others.

     

    All
      inquiries, if any, regarding the other party's performance shall be responded
      to
      promptly. Each party shall furnish the other party with a written copy of each
      and every written response; or, if such response was oral the date, time and
      person to whom a response was given.

     

    5.
      All
      parties acknowledge and represent that: (a) they have read the Agreement; (b)
      they clearly understand the Agreement and each of its terms;

     

    (c)
      they
      fully and unconditionally consent to the terms of this Agreement;

     

    (d)
      they
      have had the benefit and advice of counsel of their own selection;

     

    (e)
      they
      have executed this Agreement, freely, with knowledge, and without influence
      or
      duress; (f) they have not relied upon any other representations, either written
      or oral, express or implied, made to them by any person; and (g) the
      consideration received by them has been actual and adequate.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    6.
      This
      Agreement contains the entire agreement and understanding concerning the subject
      matter hereof between the parties and supersedes and replaces all prior
      negotiations, proposed agreement and agreements, written or oral. Each of the
      parties hereto acknowledges that neither any of the parties hereto, nor agents
      or counsel of any other party whomsoever, has made any promise, representation
      or warranty whatsoever, express or implied, not contained herein concerning
      the
      subject hereto, to induce it to execute this Agreement and acknowledges ands
      warrants that it is not executing this Agreement in reliance on any promise,
      representation or warranty not contained herein.

     

    7.
      This
      Agreement may not be modified or amended in any manner except by an instrument
      in writing specifically stating that it is a supplement, modification or
      amendment to the Agreement and signed by each of the parties
      hereto.

     

    8.
      Should
      any provision of this Agreement be declared or be determined by any court or
      tribunal to be illegal or invalid, the validity of the remaining parts, terms
      or
      provisions shall not be affected thereby and said illegal or invalid part,
      term
      or provision shall be severed and deemed not to be part of this
      Agreement.

     

    9.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York, without regard to principles of conflicts of laws. Any action
      brought by either party against the other concerning the transactions
      contemplated by this Agreement shall be brought only in the state courts of
      New
      York or in the federal courts located in the state of New York. Both parties
      and
      the individuals executing this Agreement and other agreements on behalf of
      the
      Company agree to submit to the jurisdiction of such courts and waive trial
      by
      jury. The prevailing party shall be entitled to recover from the other party
      its
      reasonable attorney's fees and costs.

     

    10.
      This
      Agreement may be executed in counterparts, each of which, when all parties
      have
      executed at least one such counterpart, shall be deemed an original, with the
      same force and effect as if all signatures were appended to one instrument,
      but
      all of which together shall constitute one and the same Agreement.

     

    11.
      Immediately upon receipt of the funds, Grushko & Mittman is instructed to
      wire the balances to the Investors.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
      first indicated above.

     

     

    
      ALPHA
        CAPITAL AKTIENGESELLSCHAFT

    

    
      	 	 	 
	 	 
	 
 	 
 	 
 
	 	By:  	/s/ Konrad
              Ackerman
	 	
              
                

              

              Name:
                Konrad Ackerman

              Title:
                Director

            
	 	 

    

     

    WHALEHAVEN
      CAPITAL FUND
      LIMITED

    
      	 	 	 
	 	
            
	 
 	 
 	 
 
	 	By:  	/s/ Evan
              Schemenauer
	 	
              
                

              

              Name:
                Evan Schemenauer

              Title:
                Chief Operating Officer

            
	 	
            

    

     

    ELLIS
      INTERNATIONAL
      LTD.

    
      	 	 	 
	 	
            
	 
 	 
 	 
 
	 	By:  	/s/ Wilhelm
              Unger
	 	
              
                

              

              Name:
                Wilhelm Unger

              Title:

            
	 	 

    

     

    HYBRID
      FUEL SYSTEMS, INC.

    
      	 	 	 
	 	
            
	 
 	 
 	 
 
	 	By:  	/s/ Mark
              Clancy
	 	
              
                

              

              Name:
                Mark Clancy

              Title:
                Chief Executive Officer

            
	 	 

    

    

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      EXHIBIT
        A

       

      ALLOCATIONS
        AND

      WIRE
        TRANSFER INSRUCTIONS

       

       

      
        	 INVESTOR	
                 
                  BANK ACCOUNT 

              	
                 AMOUNT

              
	 	 	 
	 ALPHA CAPITAL AKTIENGESELLSCHAFT
                	 C/O GRUSHKO & MITTMAN P.C	
                 $199,500.00

              
	 	 	 
	 WHALEHAVEN CAPITAL FUND LIMITED
                	 C/O GRUSHKO & MITTMAN P.C
	
                 $313,500.00

              
	 	 	 
	 ELLIS INTERNATIONAL LTD. 	 C/O GRUSHKO & MITTMAN P.C
	
                 $
                  28,542.00

              
	 	 	 
	 	 TOTAL 	
                 $541,542.00

              

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

     

    
 

    
      	 PRIVATE
              WARRANTS	
               
                ISSUED 

            	
               EXPIRATION

            
	 	 	 
	
              ALPHA
                CAPITAL AKTIENGESELLSCHAFT

              WHALEHAVEN
                CAPITAL FUND LIMITED

              ELLIS
                INTERNATIONAL LTD.

            	 	 
	 	 	 
	
               Total

            	
               1,600,000Unassociated Document

    Exhibit
      10.25

     

    PROMISSORY
      NOTE

     

    FACE
      AMOUNT $1,362,500

     

    PRICE
      $1,090,000 INTEREST RATE 0% per month NOTE NUMBER December-2005-101 ISSUANCE
      DATE December 20, 2005 MATURITY DATE December 21, 2006

     

    FOR
      VALUE
      RECEIVED, Hybrid Fuel Systems, Inc., a Georgia corporation (the "Company"),
      (OTC
      BB: HYFS) hereby promises to pay to the order of DUTCHESS PRIVATE EQUITIES
      FUND,
      L.P. AND DUTCHESS PRIVATE EQUITIES FUND, II, LP (collectively, the "Holder")
      by
      the Maturity Date, or earlier, the Face Amount of One Million Three Hundred
      and
      Sixty-Two Thousand Five Hundred Dollars ($1,362,500) U.S., in such amounts,
      at
      such times and on such terms and conditions as are specified herein (this
      "Note").

     

    Any
      capitalized term not defined in this Note are defined in the Investment
      Agreement for the Equity Line of Credit between Dutchess Private Equities Fund,
      LP (the "Investor") and the Company (the "Equity Line").

     

    ARTICLE
      1 METHOD OF PAYMENT

     

    Payments
      made by the Company in satisfaction of this Note (each a "Payment," and
      collectively, the "Payments") shall be made from each Put from the Equity Line
      of Credit with the Investor given by the Company to the Investor. The Company
      shall make payments to the Holder in the amount of the greater of a) one hundred
      percent (100%) of each Put to the Investor from the Company; or, b) one hundred
      thirteen thousand five hundred and forty-one dollars and sixty-seven cents
      ($113,541.67) (collectively, the "Payment Amount") until the Face Amount is
      paid
      in full, minus any fees due. First Payment will be due on February 1, 2006
      and
      all subsequent Payments will be made at the Closing of every Put to the Investor
      thereafter until this Note is paid in full, with a minimum amount of one hundred
      thirteen thousand five hundred and forty-one dollars ($113,541.67) per month.
      ("Payment Date" or "Payment Dates"). Notwithstanding any provision to the
      contrary in this Note, the Company may pay in full to the Holder the Face
      Amount, or any balance remaining thereof, in readily available funds at any
      time
      and from time to time without penalty.

     

    Payments
      pursuant to this Note shall be made directly from the Closing of each Put ("Put
      Closing") and shall be wired directly to the Holder on the Closing Date and
      shall be included in the calculation of the Threshold Amount (as defined below).
      The Company agrees to fully execute and diligently carry out Puts to the
      Investor. The Company agrees that the Put Amount shall be for the maximum amount
      allowed under the Investment Agreement. Further, the Company agrees to issue
      Puts to the Investor for the maximum frequency allowed under the Investment
      Agreement. Failure to do so will result in an Event of Default.

     

    The
      Company hereby authorizes Dutchess Private Equities Fund, LP, to transfer funds
      directly to the Holder from each Put in connection with the Company's execution
      of the Collateral (as defined below in Article 2). The Puts shall be deemed
      closed for the amounts transferred to the Holder immediately upon the Put
      Closing.

     

    After
      Closing, the Company must make a Prepayment to the Holder when the aggregate
      amount of financing received by the Company is in excess of one million dollar
      ($1,000,000) ("Threshold Amount"). The Company agrees to pay one hundred percent
      (100%) of any proceeds raised by the Company over the Threshold Amount toward
      the Prepayment of the Note, Interest and any penalties until the Face Amount
      is
      paid in full. The Prepayments shall be made to the Holder within one (1)
      business day of the Company's receipt of the financing. Failure to do so will
      result in an Event of Default. The Threshold Amount shall also pertain to any
      assets sold, transferred or disposed of by the Company.

     

    ARTICLE
      2 COLLATERAL

     

    The
      Company does hereby agree to issue forty (40) signed Put Notices to the Holder
      to use as Collateral. In the event, the Holder uses the Collateral in full,
      the
      Company shall immediately deliver to the Holder additional Put Sheets as
      requested by the Holder.

     

    Upon
      the
      completion of the Company's obligation to the Holder of the Face Amount of
      this
      Note, the Company will not be under further obligation to complete any more
      Puts. All remaining Put sheets shall be marked "VOID" by the Investor and sent
      back to the Company at the Company's request.

     

    ARTICLE
      3 UNPAID AMOUNTS

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    In
      the
      event that on the Maturity Date the Company has any remaining amounts unpaid
      on
      this Note (the "Residual Amount"), the Holder can exercise its right to increase
      the Face Amount by ten percent (10%) as an initial penalty AND an additional
      two
      and one-half percent (2.5%) per month paid, pro rata for partial periods,
      compounded daily, as liquated damages ("Liquidated Damages"). The Liquated
      Damages will be compounded daily. If the aforementioned occurs, the Company
      will
      be in Default and the remedies as described in Article 4 may be taken at the
      Holder's discretion. It is the intention and acknowledgement of both parties
      that the Liquidated Damages not be deemed as interest.

     

    ARTICLE
      4 DEFAULTS AND REMEDIES

     

    Section
      4.1 Events of Default. An "Event of Default" or "Default" occurs if

     

    (a)
      the
      Company does not make the Payment on the Face Amount of this Note within two
      (2)
      business days of the applicable Closing of a Put, a Payment Date; or, a balance
      on the Note exists on the Maturity Date, as applicable, upon redemption or
      otherwise, (b) the Company, pursuant to or within the meaning of any Bankruptcy
      Law (as hereinafter defined): (i) commences a voluntary case;

     

    (ii)
      consents to the entry of an order for relief against it in an involuntary case;
      (iii) consents to the appointment of a Custodian (as hereinafter defined) of
      it
      or for all or substantially all of its property; (iv) makes a general assignment
      for the benefit of its creditors; or (v) a court of competent jurisdiction
      enters an order or decree under any Bankruptcy Law that: (A) is for relief
      against the Company in an involuntary case; (B) appoints a Custodian of the
      Company or for all or substantially all of its property; or (C) orders the
      liquidation of the Company, and the order or decree remains unstayed and in
      effect for sixty (60) calendar days; (c) the Company's $0.001 par value common
      stock (the "Common Stock") is suspended or is no longer listed on any recognized
      exchange, including an electronic over-the-counter bulletin board, for in excess
      of two (2) consecutive trading days; or (d) either the registration statement
      for the underlying shares in the Investment Agreement does not remain effective
      for any reason and is not cured within 5 days or (e) the Company fails to comply
      with any of the Articles of this Agreement as outlined and is not cured within
      5
      days. As used in this Section 4.1, the term "Bankruptcy Law" means Title 11
      of
      the United States Code or any similar federal or state law for the relief of
      debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator
      or similar official under any Bankruptcy Law.

     

    In
      the
      Event of Default, the Holder may elect to secure a portion of the Company's
      assets not to exceed 200% of the Face Amount of the Note, including, but not
      limited to: accounts receivable, cash, marketable securities, equipment,
      building, land or inventory. The Holder may also elect to garnishee Revenue
      from
      the Company in an amount that will repay the Holder on the schedules outlined
      in
      this Agreement and fully enforce the Security Agreement dated November 4, 2005,
      between the Holder and the Company.

     

    For
      EACH
      Event of Default, as outlined in this Agreement, the Holder can exercise its
      right to increase the Face Amount of the Debenture by ten percent (10%) as
      an
      initial penalty. In addition, the Holder may elect to increase the Face Amount
      by two and one-half percent (2.5%) per month paid as a penalty for Liquidated
      Damages. The Liquated Damages will be compounded daily. It is the intention
      and
      acknowledgement of both parties that the Liquidated Damages not be deemed as
      interest.

     

    In
      the
      event of a Default hereunder, the Holder shall have the right, but not the
      obligation, to 1) switch the Residual Amount to a three-year ("Convertible
      Maturity Date"), fifteen percent (15%) interest bearing convertible debenture
      at
      the terms described in Section 4.2 (the "Convertible Debenture"). At such time
      of Default, the Convertible Debenture shall be considered closed ("Convertible
      Closing Date"). If the Holder chooses to convert the Residual Amount to a
      Convertible Debenture, the Company shall have twenty (20) business days after
      notice of the same (the "Notice of Convertible Debenture") to file a
      registration statement covering an amount of shares equal to three hundred
      percent (300%) of the Residual Amount. Such registration statement shall be
      declared effective under the Securities Act of 1933, as amended (the "Securities
      Act"), by the Securities and Exchange Commission (the "Commission") within
      forty
      (40) business days of the date the Company files such Registration Statement.
      In
      the event the Company does not file such registration statement within twenty
      (20) business days of the Holder's request, or such registration statement
      is
      not declared by the Commission to be effective under the Securities Act within
      the time period described above , the Residual Amount shall increase by five
      thousand dollars ($5,000) per day. In the event the Company is given the option
      for accelerated effectiveness of the registration statement, it agrees that
      it
      shall cause such registration statement to be declared effective as soon as
      reasonably practicable. In the event that the Company is given the option for
      accelerated effectiveness of the registration statement, but chooses not to
      cause such registration statement to be declared effective on such accelerated
      basis, the Residual Amount shall increase by five thousand dollars ($5,000)
      per
      day commencing on the earliest date as of which such registration statement
      would have been declared to be effective if subject to accelerated
      effectiveness; or 2) the Holder may increase the Payment Amount described under
      Article 1 to fulfill the repayment of the Residual Amount. The Company shall
      provide full cooperation to the Holder in directing funds owed to the Holder
      on
      any Put to the Investor. The Company agrees to diligently carry out the terms
      outlined in the Investment Agreement for delivery of any such shares. In the
      event the Company is not diligently fulfilling its obligation to direct funds
      owed to the Holder from Puts to the Investor, as reasonably determined by the
      Holder, the Holder may, after giving the Company two (2) business days' advance
      notice to cure the same, elect to increase the Face Amount of the Note by 2.5%
      each day, compounded daily.

     

    Section
      4.2 Conversion Privilege

     

    (a)
      The
      Holder shall have the right to convert the Convertible Debenture into shares
      of
      Common Stock at any time following the Convertible Closing Date and which is
      before the close of business on the Convertible Maturity Date. The number of
      shares of Common Stock issuable upon the conversion of the Convertible Debenture
      shall be determined pursuant to Section 4.3, but the number of shares issuable
      shall be rounded up or down, as the case may be, to the nearest whole
      share.

     

    (b)
      The
      Convertible Debenture may be converted, whether in whole or in part, at any
      time
      and from time to time.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c)
      In
      the event all or any portion of the Convertible Debenture remains outstanding
      on
      the Convertible Maturity Date (the "Debenture Residual Amount"), the unconverted
      portion of such Convertible Debenture will automatically be converted into
      shares of Common Stock on such date in the manner set forth in

     

    Section
      4.3.

     

    Section
      4.3 Conversion Procedure.

     

    The
      Residual Amount may be converted, in whole or in part any time and from time
      to
      time, following the Convertible Closing Date. Such conversion shall be
      effectuated by surrendering to the Company, or its attorney, the Convertible
      Debenture to be converted together with a facsimile or original of the signed
      notice of conversion (the "Notice of Conversion"). The date on which the Notice
      of Conversion is effective ("Conversion Date") shall be deemed to be the date
      on
      which the Holder has delivered to the Company a facsimile or original of the
      signed Notice of Conversion, as long as the original Convertible Debenture(s)
      to
      be converted are received by the Company within five (5) business days
      thereafter. At such time that the original Convertible Debenture has been
      received by the Company, the Holder can elect to whether a reissuance of the
      Convertible Debenture is warranted, or whether the Company can retain the
      Convertible Debenture as to a continual conversion by the Holder.
      Notwithstanding the above, any Notice of Conversion received by 4:00 P.M. EST
      shall be deemed to have been received the following business day (receipt being
      via a confirmation of the time such facsimile to the Company is
      received).

     

    (a)
      Common Stock to be Issued. Upon the conversion of any Convertible Debentures
      and
      upon receipt by the Company or its attorney of a facsimile or original of the
      Holder's signed Notice of Conversion, the Company shall instruct its transfer
      agent to issue stock certificates without restrictive legends or stop transfer
      instructions, if at that time the aforementioned registration statement
      described in Section 4.1 has been declared effective (or with proper restrictive
      legends if the registration statement has not as yet been declared effective),
      in such denominations to be specified at conversion representing the number
      of
      shares of Common Stock issuable upon such conversion, as applicable. In the
      event that the Debenture is aged one year and deemed sellable under Rule 144,
      the Company shall, upon a Notice of Conversion, instruct the transfer agent
      to
      issue free trading certificates without restrictive legends, subject to other
      applicable securities laws. The Company is responsible to provide all costs
      associated with the issuance of the shares, including but not limited to the
      opinion letter, FedEx of the certificates and any other costs that arise. The
      Company shall act as registrar and shall maintain an appropriate ledger
      containing the necessary information with respect to each Convertible Debenture.
      The Company warrants that no instructions, other than these instructions, have
      been given or will be given to the transfer agent and that the Common Stock
      shall otherwise be freely resold, except as may be set forth herein or subject
      to applicable law.

     

    (b)
      Conversion Rate. Holder is entitled to convert the Debenture Residual Amount
      ,
      plus accrued interest, anytime following the Convertible Maturity Date, at
      the
      lesser of (i) fifty percent (50%) of the lowest closing bid price during the
      fifteen (15) trading immediately preceding the Convertible Maturity Date or
      (ii)
      100% of the lowest bid price for the twenty (20) trading days immediately
      preceding the Convertible Maturity Date ("Fixed Conversion Price"). No
      fractional shares or scrip representing fractions of shares will be issued
      on
      conversion, but the number of shares issuable shall be rounded up or down,
      as
      the case may be, to the nearest whole share.

     

    (c)
      Nothing contained in the Convertible Debenture shall be deemed to establish
      or
      require the payment of interest to the Holder at a rate in excess of the maximum
      rate permitted by governing law. In the event that the rate of interest required
      to be paid exceeds the maximum rate permitted by governing law, the rate of
      interest required to be paid thereunder shall be automatically reduced to the
      maximum rate permitted under the governing law and such excess shall be returned
      with reasonable promptness by the Holder to the Company.

     

    (d)
      It
      shall be the Company's responsibility to take all necessary actions and to
      bear
      all such costs to issue the Common Stock as provided herein, including the
      responsibility and cost for delivery of an opinion letter to the transfer agent,
      if so required. Holder shall be treated as a shareholder of record on the date
      Common Stock is issued to the Holder. If the Holder shall designate another
      person as the entity in the name of which the stock certificates issuable upon
      conversion of the Convertible Debenture are to be issued prior to the issuance
      of such certificates, the Holder shall provide to the Company evidence that
      either no tax shall be due and payable as a result of such transfer or that
      the
      applicable tax has been paid by the Holder or such person. Upon surrender of
      any
      Convertible Debentures that are to be converted in part, the Company shall
      issue
      to the Holder a new Convertible Debenture equal to the unconverted amount,
      if so
      requested in writing by the Holder.

     

    (e)
      Within five (5) business days after receipt of the documentation referred to
      above in Section 4.2, the Company shall deliver a certificate, for the number
      of
      shares of Common Stock issuable upon the conversion. In the event the Company
      does not make delivery of the Common Stock as instructed by Holder within
      five

     

    (5)
      business days after the Conversion Date, then in such event the Company shall
      pay to the Holder one percent (1%) in cash of the dollar value of the Debenture
      Residual Amount remaining after said conversion, compounded daily, per each
      day
      after the fifth (5th) business day following the Conversion Date that the Common
      Stock is not delivered to the Purchaser.

     

    The
      Company acknowledges that its failure to deliver the Common Stock within five
      (5) business days after the Conversion Date will cause the Holder to suffer
      damages in an amount that will be difficult to ascertain. Accordingly, the
      parties agree that it is appropriate to include in this Note a provision for
      liquidated damages The parties acknowledge and agree that the liquidated damages
      provision set forth in this section represents the parties' good faith effort
      to
      quantify such damages and, as such, agree that the form and amount of such
      liquidated damages are reasonable and will not constitute a penalty. The payment
      of liquidated damages shall not relieve the Company from its obligations to
      deliver the Common Stock pursuant to the terms of this Convertible
      Debenture.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (f)
      The
      Company shall at all times reserve (or make alternative written arrangements
      for
      reservation or contribution of shares) and have available all Common Stock
      necessary to meet conversion of the Convertible Debentures by the Holder of
      the
      entire amount of Convertible Debentures then outstanding. If, at any time the
      Holder submits a Notice of Conversion and the Company does not have sufficient
      authorized but unissued shares of Common Stock (or alternative shares of Common
      Stock as may be contributed by stockholders of the Company) available to effect,
      in full, a conversion of the Convertible Debentures (a "Conversion Default,"
      the
      date of such default being referred to herein as the "Conversion Default Date"),
      the Company shall issue to the Holder all of the shares of Common Stock which
      are available, and the Notice of Conversion as to any Convertible Debentures
      requested to be converted but not converted (the "Unconverted Convertible
      Debentures"), may be deemed null and void upon written notice sent by the Holder
      to the Company. The Company shall provide notice of such Conversion Default
      ("Notice of Conversion Default") to the Holder, by facsimile within three (3)
      business days of such default (with the original delivered by overnight mail
      or
      two day courier), and the Holder shall give notice to the Company by facsimile
      within five (5) business days of receipt of the original Notice of Conversion
      Default (with the original delivered by overnight mail or two day courier)
      of
      its election to either nullify or confirm the Notice of Conversion.

     

    The
      Company agrees to pay the Holder payments for a Conversion Default ("Conversion
      Default Payments") in the amount of (N/365) multiplied by .24 multiplied by
      the
      initial issuance price of the outstanding or tendered but not converted
      Convertible Debentures held by the Holder where N = the number of days from
      the
      Conversion Default Date to the date (the "Authorization Date") that the Company
      authorizes a sufficient number of shares of Common Stock to effect conversion
      of
      all remaining Convertible Debentures. The Company shall send notice
      ("Authorization Notice") to the Holder that additional shares of Common Stock
      have been authorized, the Authorization Date, and the amount of Holder's accrued
      Conversion Default Payments. The accrued Conversion Default shall be paid in
      cash or shall be convertible into Common Stock at the conversion rate set forth
      in the first sentence of this paragraph, upon written notice sent by the Holder
      to the Company, which Conversion Default shall be payable as
      follows:

     

    (i)
      in
      the event the Holder elects to take such payment in cash, cash payments shall
      be
      made to the Holder by the fifth (5th) day of the following calendar month,
      or
      (ii) in the event Holder elects to take such payment in stock, the Holder may
      convert such payment amount into Common Stock at the conversion rate set forth
      in the first sentence of this paragraph at any time after the fifth

     

    (5th)
      day
      of the calendar month following the month in which the Authorization Notice
      was
      received, until the expiration of the mandatory three (3) year conversion
      period.

     

    The
      Company acknowledges that its failure to maintain a sufficient number of
      authorized but unissued shares of Common Stock to effect in full a conversion
      of
      the Convertible Debentures will cause the Holder to suffer damages in an amount
      that will be difficult to ascertain. Accordingly, the parties agree that it
      is
      appropriate to include in this Agreement a provision for liquidated damages.
      The
      parties acknowledge and agree that the liquidated damages provision set forth
      in
      this section represents the parties' good faith effort to quantify such damages
      and, as such, agree that the form and amount of such liquidated damages are
      reasonable and will not constitute a penalty. The payment of liquidated damages
      shall not relieve the Company from its obligations to deliver the Common Stock
      pursuant to the terms of this Convertible Debenture.

     

    (g)
      If,
      by the third (3rd) business day after the Conversion Date of any portion of
      the
      Convertible Debentures to be converted (the "Delivery Date"), the transfer
      agent
      fails for any reason to deliver the Common Stock upon conversion by the Holder
      and after such Delivery Date, the Holder purchases, in an open market
      transaction or otherwise, shares of Common Stock (the "Covering Shares") solely
      in order to make delivery in satisfaction of a sale of Common Stock by the
      Holder (the "Sold Shares"), which delivery such Holder anticipated to make
      using
      the Common Stock issuable upon conversion (a "Buy-In"), the Company shall pay
      to
      the Holder, in addition to any other amounts due to Holder pursuant to this
      Convertible Debenture, and not in lieu thereof, the Buy-In Adjustment Amount
      (as
      defined below). The "Buy In Adjustment Amount" is the amount equal to the
      excess, if any, of (x) the Holder's total purchase price (including brokerage
      commissions, if any) for the Covering Shares over (y) the net proceeds (after
      brokerage commissions, if any) received by the Holder from the sale of the
      Sold
      Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in
      immediately available funds within five (5) business days of written demand
      by
      the Holder. By way of illustration and not in limitation of the foregoing,
      if
      the Holder purchases shares of Common Stock having a total purchase price
      (including brokerage commissions) of $11,000 to cover a Buy-In with respect
      to
      shares of Common Stock it sold for net proceeds of $10,000, the Buy-In
      Adjustment Amount which the Company will be required to pay to the Holder will
      be $1,000.

     

    (h)
      The
      Company shall defend, protect, indemnify and hold harmless the Holder and all
      of
      its shareholders, officers, directors, employees, counsel, and direct or
      indirect investors and any of the foregoing person's agents or other
      representatives (including, without limitation, those retained in connection
      with the transactions contemplated by this Agreement) (collectively, the
      "Section 4.3(h) Indemnitees") from and against any and all actions, causes
      of
      action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
      and expenses in connection therewith (irrespective of whether any such Section
      4.3(h) Indemnitee is a party to the action for which indemnification hereunder
      is sought), and including reasonable attorneys' fees and disbursements (the
      "Section 4.3(h) Indemnified Liabilities"), incurred by any Section 4.3(h)
      Indemnitee as a result of, or arising out of, or relating to

     

    (i)
      any
      misrepresentation or breach of any representation or warranty made by the
      Company in the Transaction Documents or any other certificate, instrument or
      document contemplated hereby or thereby, (ii) any breach of any covenant,
      agreement, or obligation of the Company contained in the Transaction Documents
      or any other certificate, instrument, or document contemplated hereby or
      thereby, (iii) any cause of action, suit, or claim brought or made against
      such

     

    Section
      4.3(h) Indemnitee by a third party and arising out of or resulting from the
      execution, delivery, performance, or enforcement of the Transaction Documents
      or
      any other certificate, instrument, or document contemplated hereby or thereby,
      (iv) any transaction financed or to be financed in whole or in part, directly
      or
      indirectly, with the proceeds of the issuance of the Common Stock underlying
      the
      Convertible Debenture ("Securities"), or (v) the status of the Holder or holder
      of the Securities as an investor in the Company, except insofar as any such
      misrepresentation, breach or any untrue statement, alleged untrue statement,
      omission, or alleged omission is made in reliance upon and in conformity with
      written information furnished to the Company by the Holder or the Investor
      which
      is specifically intended by the Holder or the Investor
      to be relied upon by the Company, including for use in the preparation of any
      such registration statement, preliminary prospectus, or prospectus, or is based
      on illegal trading of the Common Stock by the Holder or the Investor. To the
      extent that the foregoing undertaking by the Company may be unenforceable for
      any reason, the Company shall make the maximum contribution to the payment
      and
      satisfaction of each of the Indemnified Liabilities that is permissible under
      applicable law. The indemnity provisions contained herein shall be in addition
      to any cause of action or similar rights the Holder may have, and any
      liabilities the Holder may be subject to.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      5 ADDITIONAL FINANCING AND REGISTRATION STATEMENTS

     

    The
      Company will not enter into any additional financing agreements, debt or equity,
      without prior expressed written consent from the Holder, which shall not be
      unreasonably withheld. Failure to do so will result in an Event of Default
      and
      the Holder may elect to take the action outlined in Article 4.

     

    The
      Company agrees that it shall not file any registration statement which includes
      any of its Common Stock, including those on Form S-8, until such time as the
      Note is paid off in full ("Lock-Up Period") or without the prior written consent
      of the Holder. The Holder shall also reserve the right to switch to the terms
      of
      the new financing ("Most Favored Nations").

     

    The
      Company agrees that any and all its officers, insiders, affiliates or other
      related parties shall refrain from selling any Stock, during the Lock-Up
      Period.

     

    ARTICLE
      6 NOTICE.

     

    Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Note must be in writing and will be deemed to
      have
      been delivered (i) upon receipt, when delivered personally;

     

    (ii)
      upon
      receipt, when sent by facsimile (provided a confirmation of transmission is
      mechanically or electronically generated and kept on file by the sending party);
      or (iii) one (1) day after deposit with a nationally recognized overnight
      delivery service, in each case properly addressed to the party to receive the
      same. The addresses and facsimile numbers for such communications shall
      be:

     

    If
      to the Company:

     

    Mark
      Clancy

    Hybrid
      Fuel Systems

    12409
      Telecom Drive

    Tampa,
      FL
      33637

    Telephone:
      813-979-9222

    Facsimile:
      813-979-9224

     

    With
      copy
      to:

     

    Darrin
      M.
      Ocasio, Esq.

    Sichenzia
      Ross Friedman Ference LLP

    1065
      Avenue of the Americas, 21st flr. New York, NY 10018

    Telephone:
      212-930-9700

    Facsimile:
      212-930-9725

     

    If
      to the Holder:

     

    Dutchess
      Private Equities Fund, II, LP Douglas Leighton

    50
      Commonwealth Ave, Suite 2

    Boston,
      MA 02116

    (617)
      301-4700

    (617)
      249-0947

     

    Each
      party shall provide five (5) business days prior notice to the other party
      of
      any change in address, phone number or facsimile number.

     

    ARTICLE
      7 TIME

     

    Where
      this Note authorizes or requires the payment of money or the performance of
      a
      condition or obligation on a Saturday or Sunday or a holiday in which the United
      States Stock Markets ("US Markets") are closed ("Holiday"), or authorizes or
      requires the payment of money or the performance of a condition or obligation
      within, before or after a period of time computed from a certain date, and
      such
      period of time ends on a Saturday or a Sunday or a Holiday, such payment may
      be
      made or condition or obligation performed on the previous business day, and
      if
      the period ends at a specified hour, such payment may be made or condition
      performed, at or before the same hour of such previous business day, with the
      same force and effect as if made or performed in accordance with the terms
      of
      this Note. A "business day" shall mean a day on which the US Markets are open
      for a full day or half day of trading.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    
ARTICLE 8 NO ASSIGNMENT

     

    This
      Note
      shall not be assigned.

     

    ARTICLE
      9 RULES OF CONSTRUCTION.

     

    In
      this
      Note, unless the context otherwise requires, words in the singular number
      include the plural, and in the plural include the singular, and words of the
      masculine gender include the feminine and the neuter, and when the tense so
      indicates, words of the neuter gender may refer to any gender. The numbers
      and
      titles of sections contained in the Note are inserted for convenience of
      reference only, and they neither form a part of this Note nor are they to be
      used in the construction or interpretation hereof. Wherever, in this Note,
      a
      determination of the Company is required or allowed, such determination shall
      be
      made by a majority of the Board of Directors of the Company and, if it is made
      in good faith, it shall be conclusive and binding upon the Company and the
      Holder.

     

    ARTICLE
      10 GOVERNING LAW

     

    The
      validity, terms, performance and enforcement of this Note shall be governed
      and
      construed by the provisions hereof and in accordance with the laws of the
      Commonwealth of Massachusetts applicable to agreements that are negotiated,
      executed, delivered and performed solely in the Commonwealth of
      Massachusetts.

     

    ARTICLE
      11 LITIGATION

     

    The
      parties to this agreement will submit all disputes arising under this agreement
      to arbitration in Boston, Massachusetts before a single arbitrator of the
      American Arbitration Association ("AAA"). The arbitrator shall be selected
      by
      application of the rules of the AAA, or by mutual agreement of the parties,
      except that such arbitrator shall be an attorney admitted to practice law in
      the
      Commonwealth of Massachusetts. No party to this agreement will challenge the
      jurisdiction or venue provisions as provided in this section.

     

    ARTICLE
      12 CONDITIONS TO CLOSING

     

    The
      Company shall have delivered the proper Collateral to the Holder before Closing
      of this Note.

     

    ARTICLE
      13 STRUCTURING AND ADMINISTRATION EXPENSE

     

    The
      Company shall pay fees associated with the transaction in the amount of ninety
      thousand dollars ($90,000) directly from the Closing of this Note.

     

    ARTICLE
      14 INDEMNIFICATION

     

    In
      consideration of the Holder's execution and delivery of this Agreement and
      the
      acquisition and funding by the Holder of the Note hereunder and in addition
      to
      all of the Company's other obligations under the documents contemplated hereby,
      the Company shall defend, protect, indemnify and hold harmless the Holder and
      all of its shareholders, officers, directors, employees, counsel, and direct
      or
      indirect investors and any of the foregoing person's agents or other
      representatives (including, without limitation, those retained in connection
      with the transactions contemplated by this Agreement) (collectively, the
      "Indemnities") from and against any and all actions, causes of action, suits,
      claims, losses, costs, penalties, fees, liabilities and damages, and expenses
      in
      connection therewith (irrespective of whether any such Indemnitee is a party
      to
      the action for which indemnification hereunder is sought), and including
      reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"
      ),
      incurred by any Indemnitee as a result of, or arising out of, or relating to
      (i)
      any misrepresentation or breach of any representation or warranty made by the
      Company in the Note, or any other certificate, instrument or document
      contemplated hereby or thereby (ii) any breach of any covenant, agreement or
      obligation of the Company contained in the Note or any other certificate,
      instrument or document contemplated hereby or thereby, except insofar as any
      such misrepresentation, breach or any untrue statement, alleged untrue
      statement, omission or alleged omission is made in reliance upon and in
      conformity with written information furnished to the Company by, or on behalf
      of, the Holder or is based on illegal trading of the Common Stock by the Holder.
      To the extent that the foregoing undertaking by the Company may be unenforceable
      for any reason, the Company shall make the maximum contribution to the payment
      and satisfaction of each of the Indemnified Liabilities that is permissible
      under applicable law. The indemnity provisions contained herein shall be in
      addition to any cause of action or similar rights the Holder may have, and
      any
      liabilities the Holder may be subject to.

     

    ARTICLE
      15 Incentive Shares

     

    The
      Company shall issue ten million two hundred and fifty thousand (10,250,000)
      shares of unregistered, restricted Common Stock to the Holder as an incentive
      for the investment ("Shares"). The Shares shall be issued and delivered
      immediately to the Holder and shall carry piggyback registration rights. In
      the
      event the Shares are not registered in the next registration statement, the
      Company shall pay to the Holder, as a penalty, ten million two hundred and
      fifty
      thousand (10,250,000) additional shares of common stock for each time a
      registration statement is filed and the Shares are not included. The Holder
      retains the right to waive such penalty, in the event Holder chooses to do
      so.
      Failure to do so will result in an Event of Default and the Holder may elect
      to
      take the action outlined in Article 4. This Event of Default will survive this
      Agreement until such time as the Shares are no longer under the control of
      the
      Holder.

     

    ARTICLE
      16 USE OF PROCEEDS

     

    The
      Company shall use the funds for general corporate purposes.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
      17 WAIVER

     

    The
      Holder's delay or failure at any time or times hereafter to require strict
      performance by Company of any undertakings, agreements or covenants shall not
      waiver, affect, or diminish any right of the Holder under this Agreement to
      demand strict compliance and performance herewith. Any waiver by the Holder
      of
      any Event of Default shall not waive or affect any other Event of Default,
      whether such Event of Default is prior or subsequent thereto and whether of
      the
      same or a different type. None of the undertakings, agreements and covenants
      of
      the Company contained in this Agreement, and no Event of Default, shall be
      deemed to have been waived by the Holder, nor may this Agreement be amended,
      changed or modified, unless such waiver, amendment, change or modification
      is
      evidenced by an instrument in writing specifying such waiver, amendment, change
      or modification and signed by the Holder.

     

    ARTICLE
      18 WAIVER OF JURY TRIAL

     

    AS
      A
      MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE
      PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
      RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
      ASSOCIATED WITH THIS TRANSACTION.

     

    ARTICLE
      19 SENIOR OBLIGATION

     

    The
      Company shall cause this Note ("Holder's Debt") to be senior in right of payment
      to all other Indebtedness of the Company.

     

    ARTICLE
      20 TRANSACTIONS WITH AFFILIATES

     

    The
      Company shall not, and shall cause each of its Subsidiaries not to, enter into,
      amend, modify or supplement, or permit any Subsidiary to enter into, amend,
      modify or supplement, any agreement, transaction, commitment or arrangement
      with
      any of its or any Subsidiary's officers, directors, persons who were officers
      or
      directors at any time during the previous two years, shareholders who
      beneficially own five percent (5%) or more of the Common Stock, or affiliates
      or
      with any individual related by blood, marriage or adoption to any such
      individual or with any entity in which any such entity or individual owns a
      five
      percent (5%) or more beneficial interest (each a "Related Party") during the
      Lock Up Period

     

    ARTICLE
      21 EQUITY LINE OBLIGATIONS

     

    At
      such
      time, when the Company's current effective registration statement for the Equity
      Line of Credit with Dutchess Private Equities, II, LP (File No:

     

    333-129928),
      has fifty million (50,000,000) shares or less remaining for issuance, or upon
      the request of the Holder, the Company shall immediately execute a new
      Investment Agreement for an Equity Line of Credit under the same terms and
      conditions as the previous Equity Line. The Company shall immediately prepare
      and file a registration statement underlying the shares in the Investment
      Agreement, to be filed only with the Holder's consent. The Holder shall also
      retain the right to determine the date of the filing of the registration
      statement. Failure to do any action outlined in this Article will result in
      an
      Event of Default.

     

    ARTICLE
      22 SECURITY

     

    The
      Holder shall have full right to exercise the Security Agreement between the
      Company and the Holder dated November 4, 2005.

     

    ARTICLE
      23 MISCELLANEOUS

     

    a.
      All
      pronouns and any variations thereof used herein shall be deemed to refer to
      the
      masculine, feminine, impersonal, singular or plural, as the identity of the
      person or persons may require.

     

    b.
      Neither this Note nor any provision hereof shall be waived, modified, changed,
      discharged, terminated, revoked or canceled, except by an instrument in writing
      signed by the party effecting the same against whom any change, discharge or
      termination is sought.

     

    c.
      Notices required or permitted to be given hereunder shall be in writing and
      shall be deemed to be sufficiently given when personally delivered or sent
      by
      facsimile transmission: (i) if to the Company, at its executive offices
      or

     

    (ii)
      if
      to the Holder, at the address for correspondence set forth in the Article 6,
      or
      at such other address as may have been specified by written notice given in
      accordance with this paragraph.

     

    d.
      This
      Note may be executed in two or more counterparts, all of which taken together
      shall constitute one instrument. Execution and delivery of this Note by exchange
      of facsimile copies bearing the facsimile signature of a party shall constitute
      a valid and binding execution and delivery of this Note by such party. Such
      facsimile copies shall constitute enforceable original documents.

     

    e.
      This
      Written Agreement represent the FINAL AGREEEMENT between the Company and the
      Holders and may not be contradicted by evidence of prior, contemporaneous,
      or
      subsequent oral agreements of the parties, there are no unwritten oral
      agreements among the parties.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      f.
        The
        execution, delivery and performance of this Note by the Company and the
        consummation by the Company of the transactions contemplated hereby and thereby
        will not (i) result in a violation of the Articles of Incorporation, any
        Certificate of Designations, Preferences and
        Rights of any outstanding series of preferred stock of the Company or the
        By-laws or (ii) conflict with, or constitute a material default (or an event
        which with notice or lapse of time or both would become a material default)
        under, or give to others any rights of termination, amendment, acceleration
        or
        cancellation of, any material agreement, contract, indenture mortgage,
        indebtedness or instrument to which the Company or any of its Subsidiaries
        is a
        party, or result in a violation of any law, rule, regulation, order, judgment
        or
        decree, including United States federal and state securities laws and
        regulations and the rules and regulations of the principal securities exchange
        or trading market on which the Common Stock is traded or listed (the "Principal
        Market"), applicable to the Company or any of its Subsidiaries or by which
        any
        property or asset of the Company or any of its Subsidiaries is bound or
        affected. Neither the Company nor its Subsidiaries is in violation of any
        term
        of, or in default under, the Articles of Incorporation, any Certificate of
        Designations, Preferences and Rights of any outstanding series of preferred
        stock of the Company or the By-laws or their organizational charter or by-laws,
        respectively, or any contract, agreement, mortgage, indebtedness, indenture,
        instrument, judgment, decree or order or any statute, rule or regulation
        applicable to the Company or its Subsidiaries, except for possible conflicts,
        defaults, terminations, amendments, accelerations, cancellations and violations
        that would not individually or in the aggregate have a Material Adverse Effect.
        The business of the Company and its Subsidiaries is not being conducted,
        and
        shall not be conducted, in violation of any law, statute, ordinance, rule,
        order
        or regulation of any governmental authority or agency, regulatory or
        self-regulatory agency, or court, except for possible violations the sanctions
        for which either individually or in the aggregate would not have a Material
        Adverse Effect. The Company is not required to obtain any consent,
        authorization, permit or order of, or make any filing or registration (except
        the filing of a registration statement) with, any court, governmental authority
        or agency, regulatory or self-regulatory agency or other third party in order
        for it to execute, deliver or perform any of its obligations under, or
        contemplated by, this Note in accordance with the terms hereof or thereof.
        All
        consents, authorizations, permits, orders, filings and registrations which
        the
        Company is required to obtain pursuant to the preceding sentence have been
        obtained or effected on or prior to the date hereof and are in full force
        and
        effect as of the date hereof. The Company and its Subsidiaries are unaware
        of
        any facts or circumstances which might give rise to any of the foregoing.
        The
        Company is not, and will not be, in violation of the listing requirements
        of the
        Principal Market as in effect on the date hereof and on each of the Closing
        Dates and is not aware of any facts which would reasonably lead to delisting
        of
        the Common Stock by the Principal Market in the foreseeable
        future.

    

     

    g.
      The
      Company and its "Subsidiaries" (which for purposes of this Note means any entity
      in which the Company, directly or indirectly, owns capital stock or holds an
      equity or similar interest) are corporations duly organized and validly existing
      in good standing under the laws of the respective jurisdictions of their
      incorporation, and have the requisite corporate power and authorization to
      own
      their properties and to carry on their business as now being conducted. Both
      the
      Company and its Subsidiaries are duly qualified to do business and are in good
      standing in every jurisdiction in which their ownership of property or the
      nature of the business conducted by them makes such qualification necessary,
      except to the extent that the failure to be so qualified or be in good standing
      would not have a Material Adverse Effect. As used in this Note, "Material
      Adverse Effect" means any material adverse effect on the business, properties,
      assets, operations, results of operations, financial condition or prospects
      of
      the Company and its Subsidiaries, if any, taken as a whole, or on the
      transactions contemplated hereby or by the agreements and instruments to be
      entered into in connection herewith, or on the authority or ability of the
      Company to perform its obligations under the Note.

     

    h.
      Authorization; Enforcement; Compliance with Other Instruments. (i) The Company
      has the requisite corporate power and authority to enter into and perform this
      Note, and to issue the Note and Incentive Debenture in accordance with the
      terms
      hereof and thereof, (ii) the execution and delivery of the Note by the Company
      and the consummation by it of the transactions contemplated hereby and thereby,
      including without limitation the reservation for issuance and the issuance
      of
      the Incentive Debenture pursuant to this Note, have been duly and validly
      authorized by the Company's Board of Directors and no further consent or
      authorization is required by the Company, its Board of Directors, or its
      shareholders, (iii) the Note has been duly and validly executed and delivered
      by
      the Company, and (iv) the Note constitutes the valid and binding obligations
      of
      the Company enforceable against the Company in accordance with their terms,
      except as such enforceability may be limited by general principles of equity
      or
      applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
      or
      similar laws relating to, or affecting generally, the enforcement of creditors'
      rights and remedies.

     

    i.
      The
      execution and delivery of this Note shall not alter any prior written agreements
      between the Company and the Investor including the Transaction Documents
      associated with Debenture Number November 2005 101. * * *

     

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    Any
      misrepresentations shall be considered a breach of contract and an Event of
      Default under this Agreement and the Holder may seek to take actions as
      described under Article 4 of this Agreement.

     

    IN
      WITNESS WHEREOF, the Company has duly executed this Note as of the date first
      written above.

     

    HYBRID
      FUEL SYSTEMS, INC.

    
      	 	 	 
	 	
            
	 
 	 
 	 
 
	 	By:  	/s/ Mark
              Clancy
	 	
              
                

              

              Name:
                Mark Clancy

              Title:
                Chief Executive Officer

            
	 	 

    

     

    DUTCHESS
      PRIVATE EQUITIES FUND, L.P. DUTCHESS
      PRIVATE EQUITIES FUND, II, L.P. BY
      ITS
      GENERAL PARTNER DUTCHESS CAPITAL
      MANAGEMENT, LLC

     

    
      	 	 	 
	 	 
	 
 	 
 	 
 
	 	By:  	/s/ Douglas
              H. Leighton
	 	
              
                

              

              Name:
                Douglas H. Leighton

              Title:
                A Managing Member

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00125-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00125-of-00352.parquet"}]]