Document:

Exhibit
        10-S-2

    

    
      
        	 	
                                      

              
	 	                 
	 	
                                   Gary
                  R. Chadick, Esq.

              
	
                   Senior Vice President, General Counsel &

                                               Secretary

              
	 	
                         
                  

              
	 	
                      400
                  Collins Road NE 

              
	 	
                    Cedar
                  Rapids, IA 52498

              
	 	
                  319.295.6835
                  Fax 319.295.3599

              
	 	
                grchadic@rockwellcollins.com

              

      

    

     

    March
      19,
      2008

    

    Mr.
      Donald R. Beall

    5
      San
      Joaquin Plaza, Suite 320

    Newport
      Beach, CA 92660-5956

    

    Dear
      Don:

    

    At
      the
      time of the spin off from Rockwell International Corporation (“Rockwell”),
      Rockwell Collins, Inc. (“Rockwell Collins”) assumed Rockwell’s commitment to
      provide you certain office, secretarial and telecommunications support as a
      retired Chief Executive Officer of Rockwell. These arrangements were set forth
      in the commitment letter between you and Rockwell dated September 5, 2000 and
      were confirmed in the letter agreement between you and Rockwell Collins dated
      October 13, 2003 for the period from December 1, 2003 through March 1,
      2008.

    

    This
      letter supersedes our letter agreement dated December 19, 2007 and confirms
      Rockwell Collins’ commitment to (1) provide you with a monthly allowance from
      March 1, 2008 until the retirement of your administrative assistant (currently
      contemplated to be in June or July 2008, the “Retirement”) of $13,312 to cover
      your office and telecommunications expenses, as well as continue during that
      period to carry one administrative person on our payroll to support your office
      activities, and (2) provide you with a monthly allowance for the period from
      the
      Retirement through February 28, 2013 (the “stated period”) of $22,282 to cover
      your office, secretarial and telecommunications expenses. As a yearly merit
      adjustment, we will increase your monthly allowance related to your
      administrative assistant services by 4 percent of the then current allowance
      for
      those services, which for the first year shall be set at $8,970 per month.
      This
      letter also confirms effective upon the Retirement that Rockwell Collins will
      no
      longer carry one administrative person on our payroll to support your office
      activities. In addition, you confirm that the monthly allowance stated above
      is
      based upon your best estimates of the cost of acquiring these services and
      you
      agree that on an annual basis you will review your actual expenses for the
      year
      for all expenses other than the administrative assistant services and should
      your actual expenses be greater than 10% less than the annualized allowance
      provided by Rockwell Collins, you will notify us and accept a reduced monthly
      allowance for the remainder of the stated period that is commensurate with
      your
      actual expenses.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Donald
      R.
      Beall

    March
      19,
      2008

    Page
      2 of
      2

    

    Please
      confirm your agreement with this letter by signing and returning to me a copy
      of
      this letter agreement.

    

    Sincerely,

    

    /s/
      Gary
      R. Chadick

     

    cc: C.
      M.
      Jones

     
P.
      E. Allen

     

    ACCEPTED:

    

    /s/
      Donald R. BeallExhibit
      4.1

    

    THIS
      SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING
      OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
      OF
      THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED
      EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
      ACT
      OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
      THE
      SECURITIES ACT OR SUCH OTHER LAWS.

     

    7
      % CONVERTIBLE DEBENTURE

     

    Company:
      TraceGuard Technologies, Inc.

    Company
      Address: 330
      Madison Avenue, 9th
      Floor,
      New York, New York 10017

    Closing
      Date: April
      18,
      2008

    Maturity
      Date: April
      18,
      2012

    Principal
      Amount:
      $1,500,000

     

    TraceGuard
      Technologies, Inc., a Nevada corporation, and any successor or resulting
      corporation by way of merger, consolidation, sale or exchange of all or
      substantially all of the assets or otherwise (the “Company”),
      for
      value received, hereby promises to pay to the Holder (as such term is
      hereinafter defined), or such other Person (as such term is hereinafter defined)
      upon order of the Holder, on the Maturity Date (as such term is hereinafter
      defined), the Principal Amount (as such term is hereinafter defined), as such
      sum may be adjusted pursuant to Article 3, and to pay interest thereon with
      such
      interest commencing to accrue as of the date hereof and payable on
      a
      monthly basis, commencing on the 15th
      date of
      the month following the month of issuance of this Debenture,
      and on
      the Maturity Date (except that, if any such date is not a Business Day, then
      such payment shall be due on the next succeeding Business Day), at the rate
      of
      Seven Percent (7 %) per annum subject to adjustment as set forth in Section
      7
      hereof (the “Interest Rate”). All interest payable on the Principal Amount of
      this Debenture shall be calculated on the basis of a year of 365 or 366 days,
      as
      the case may be, for the actual number of days (including the first day but
      excluding the last day) occurring in the period for which such interest is
      payable. Payment of interest on this Debenture shall be in cash or, at the
      option of the Holder, in shares of Common Stock of the Company valued at the
      then applicable Conversion Price (as defined herein). This Debenture may not
      be
      prepaid without the written consent of the Holder, except as provided in the
      Securities Purchase Agreement (as defined below).

     

    ARTICLE
      1

    DEFINITIONS

     

    SECTION
      1.1 Definitions.
      The
      terms defined in this Article whenever used in this Debenture have the following
      respective meanings:

     

    (i) “Affiliate”
      has the
      meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act
      of
      1934, as amended.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (ii) “Bankruptcy
      Code”
      means
      the United States Bankruptcy Code of 1986, as amended (11 U.S.C. §§ 101
et.
      seq.).

     

    (iii) “Business
      Day”
      means a
      day other than Saturday, Sunday or any day on which banks located in the State
      of California are authorized or obligated to close.

     

    (iv) “Capital
      Shares”
      means
      the Common Stock and any other shares of any other class or series of capital
      stock, whether now or hereafter authorized and however designated, which have
      the right to participate in the distribution of earnings and assets (upon
      dissolution, liquidation or winding-up) of the Company.

     

    (v) “Closing
      Date”
      means
      the closing date set forth in the first paragraph of this
      Debenture.

     

    (vi) “Common
      Shares”
      or
“Common
      Stock”
      means
      shares of the Company’s Common Stock.

     

    (vii) “Common
      Stock Issued at Conversion”,
      when
      used with reference to the securities deliverable upon conversion of this
      Debenture, means all Common Shares now or hereafter Outstanding and securities
      of any other class or series into which this Debenture hereafter shall have
      been
      changed or substituted, whether now or hereafter created and however
      designated.

     

    (viii) “Conversion”
      or“conversion”
      means
      the repayment by the Company of the Principal Amount of this Debenture (and,
      to
      the extent the Holder elects as permitted by Section 3.1, accrued and unpaid
      interest thereon) by the delivery of Common Stock on the terms provided in
      Section 3.2, and “convert,” “converted,” “convertible”
      and like
      words shall have a corresponding meaning.

     

    (ix) “Conversion
      Date”
      means
      any day on which all or any portion of the Principal Amount of this Debenture
      is
      converted in accordance with the provisions hereof.

     

    (x) “Conversion
      Notice”
      means a
      written notice of conversion substantially in the form annexed hereto as
Exhibit
      A.
      

     

    (xi) “Conversion
      Price”
      on any
      date of determination means the applicable price for the conversion of this
      Debenture into Common Shares on such day as set forth in Section
      3.1(a).

     

    (xii) “Current
      Market Price”
      on any
      date of determination means the closing price of a Common Share on such day
      as
      reported on the NASDAQ OTCBB Exchange; provided
      further,
      that,
      if such security is not listed or admitted to trading on the NASDAQ OTCBB,
      as
      reported on the principal national security exchange or quotation system on
      which such security is quoted or listed or admitted to trading, including
      without limitation the “pink
      sheets” through the Interdealer Trading Quotation System,
      or, if
      not quoted or listed or admitted to trading on any national securities exchange
      or quotation system, the closing bid price of such security on the
      over-the-counter market on the day in question as reported by Bloomberg LP
      or a
      similar generally accepted reporting service, as the case may be.

    

      
        	
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    (xiii) “Debenture”
      or
      “Debentures”
      means
      this Convertible Debenture of the Company or such other convertible debenture(s)
      exchanged therefor as provided in Section 2.1.

     

    (xiv) “Discount
      Multiplier”
has
      the
      meaning set forth in Section 3.1(a).

     

    (xv) “Event
      of Default”
      has the
      meaning set forth in Section 6.1.

     

    (xvi) “Holder”
      means
      Golden Gate Investors, Inc., any successor thereto, or any Person to whom this
      Debenture is subsequently transferred in accordance with the provisions
      hereof.

     

    (xvii) “Interest
      Payment Due Date”
      means
      any date upon which interest is due to be paid by the Company to the Holder,
      as
      set forth in the opening paragraph of this Debenture.

     

    (xviii) “Market
      Disruption Event”
      means
      any event that results in a material suspension or limitation of trading of
      the
      Common Shares.

     

    (xix) “Maturity
      Date”
      means
      the maturity date set forth in the first paragraph of this
      Debenture.

     

    (xx) “Maximum
      Rate”
      has the
      meaning set forth in Section 6.4.

     

    (xxi) “Outstanding”
      when
      used with reference to Common Shares or Capital Shares (collectively,
“Shares”)
      means,
      on any date of determination, all issued and outstanding Shares, and includes
      all such Shares issuable in respect of outstanding scrip or any certificates
      representing fractional interests in such Shares; provided,
      however,
      that
      any such Shares directly or indirectly owned or held by or for the account
      of
      the Company or any Subsidiary of the Company shall not be deemed “Outstanding”
      for
      purposes hereof.

     

    (xxii) “Person”
      means an
      individual, a corporation, a partnership, an association, a limited liability
      company, an unincorporated business organization, a trust or other entity or
      organization, and any government or political subdivision or any agency or
      instrumentality thereof.

     

    (xxiii) “Principal
      Amount”
      means,
      for any date of calculation, the principal sum set forth in the first paragraph
      of this Debenture (including all amounts represented by (a) any cash advances
      made by Holder to the Company and (b) the principal amount of the Promissory
      Note delivered to the Company by the Holder) and for which Holder has not
      theretofore furnished a Conversion Notice in compliance with Section
      3.2.

     

    (xxiv) “Promissory
      Note”
      means
      that certain Secured Promissory Note in the principal amount of $1,275,000
      of
      even date herewith issued by Golden Gate Investors, Inc. to TraceGuard
      Technologies, Inc., as the same may be amended from time to time.

     

    (xxv) “SEC”
      means
      the United States Securities and Exchange Commission.

    

      
        	
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    (xxvi) “Securities
      Act”
      means
      the Securities Act of 1933, as amended, and the rules and regulations of the
      SEC
      thereunder, all as in effect at the time.

     

    (xxvii) “Securities
      Purchase Agreement”
      means
      that certain Securities Purchase Agreement of even date herewith by and among
      the Company and Holder, as the same may be amended from time to
      time.

     

    (xxviii) “Subsidiary”
      means
      any entity of which securities or other ownership interests having ordinary
      voting power to elect a majority of the board of directors or other persons
      performing similar functions are owned directly or indirectly by the
      Company.

     

    (xxix) “Trading
      Day”
      means
      any day on which (i) purchases and sales of securities on the principal national
      security exchange or quotation system on which the Common Shares are traded
      are
      reported thereon, or, if not quoted or listed or admitted to trading on any
      national securities exchange or quotation system, as reported by Bloomberg
      LP or
      a similar generally accepted reporting service, as the case may be, (ii) at
      least one bid for the trading of Common Shares is reported and (iii) no Market
      Disruption Event occurs.

     

    (xxx) “Volume
      Weighted Average Price” per
      Common Share means the volume weighted average price of the Common Shares during
      any Trading Day as reported on the NASDAQ OTCBB; provided
      further,
      that,
      if such security is not listed or admitted to trading on the NASDAQ OTCBB,
      as
      reported on the principal national security exchange or quotation system on
      which such security is quoted or listed or admitted to trading, including
      without limitation the “pink
      sheets” through the Interdealer Trading Quotation System,
      or, if
      not quoted or listed or admitted to trading on any national securities exchange
      or quotation system, the volume weighted average price of the Common Shares
      during any Trading Day on the over-the-counter market as reported by Bloomberg
      LP or a similar generally accepted reporting service, as the case may
      be.

     

    All
      references to “cash” or “$” herein means currency of the United States of
      America.

     

    ARTICLE
      2

    EXCHANGES,
      TRANSFER AND REPAYMENT

     

    SECTION
      2.1 Registration
      of Transfer of Debentures.
      This
      Debenture, when presented for registration of transfer, shall (if so required
      by
      the Company) be duly endorsed, or be accompanied by a written instrument of
      transfer in form reasonably satisfactory to the Company duly executed, by the
      Holder duly authorized in writing.

     

    SECTION
      2.2 Loss,
      Theft, Destruction of Debenture.
      Upon
      receipt of evidence satisfactory to the Company of the loss, theft, destruction
      or mutilation of this Debenture and, in the case of any such loss, theft or
      destruction, upon receipt of indemnity or security reasonably satisfactory
      to
      the Company, or, in the case of any such mutilation, upon surrender and
      cancellation of this Debenture, the Company shall make, issue and deliver,
      in
      lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture
      of
      like tenor and unpaid Principal Amount dated as of the date hereof (which shall
      accrue interest from the most recent Interest Payment Due Date on which an
      interest payment was made in full). This Debenture shall be held and owned
      upon
      the express condition that the provisions of this Section 2.2 are exclusive
      with
      respect to the replacement of a mutilated, destroyed, lost or stolen Debenture
      and shall preclude any and all other rights and remedies notwithstanding any
      law
      or statute existing or hereafter enacted to the contrary with respect to the
      replacement of negotiable instruments or other securities without the surrender
      thereof.

    

      
        	
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    SECTION
      2.3 Who
      Deemed Absolute Owner.
      The
      Company may deem the Person in whose name this Debenture shall be registered
      upon the registry books of the Company to be, and may treat it as, the absolute
      owner of this Debenture (whether or not this Debenture shall be overdue) for
      the
      purpose of receiving payment of or on account of the Principal Amount of this
      Debenture, for the conversion of this Debenture and for all other purposes,
      and
      the Company shall not be affected by any notice to the contrary. All such
      payments and such conversions shall be valid and effectual to satisfy and
      discharge the liability upon this Debenture to the extent of the sum or sums
      so
      paid or the conversion or conversions so made.

     

    SECTION
      2.4 Repayment
      at Maturity.
      At the
      Maturity Date, the Company shall repay the outstanding Principal Amount of
      this
      Debenture in whole in cash, together with all accrued and unpaid interest
      thereon, in cash, to the Maturity Date. 

     

    ARTICLE
      3

    CONVERSION
      OF DEBENTURE

     

    SECTION
      3.1 Conversion;
      Conversion Price; Valuation Event.
      

     

    At
      the
      option of the Holder, this Debenture may be converted, either in whole or in
      part, up to the full Principal Amount hereof into Common Shares (calculated
      as
      to each such conversion to the nearest 1/100th of a share), at any time and
      from
      time to time on any Business Day, subject to compliance with Section 3.2. The
      number of Common Shares into which this Debenture may be converted is equal
      to
      the dollar amount of the Debenture being converted divided by the Conversion
      Price. The “Conversion
      Price”
      shall be
      equal to the lesser of (i) $0.50, or (ii) 70% of the average of the 3 lowest
      Volume Weighted Average Prices during the 20 Trading Days prior to Holder’s
      election to convert (the percentage figure being a “Discount
      Multiplier”).
      The
      Company reserves the right to increase the number of Trading Days in clause
      (ii)
      above, as it deems appropriate. Notwithstanding the foregoing, only that portion
      of the Principal Amount of this Debenture that has actually been paid in cash
      by
      the Holder at the Closing Date or has been repaid in cash by the Holder as
      a
      payment of principal under the Promissory Note may be converted by Holder into
      Common Shares.

     

    If
      the
      Holder elects to convert a portion of the Debenture and, on the day that the
      election is made, the Volume Weighted Average Price per share of the Company’s
      Common Stock is below $0.15 (as adjusted for any stock splits, stock dividends,
      combinations, subdivisions, recapitalizations, or the like), the Company shall
      have the right to prepay that portion of the Debenture that Holder elected
      to
      convert, plus any accrued and unpaid interest, at 135% of such amount. In the
      event that the Company elects to prepay that portion of the Debenture, Holder
      shall be deemed to have withdrawn its Conversion Notice.

    

      
        	
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    SECTION
      3.2 Exercise
      of Conversion Privilege.
      (a)
      Conversion of this Debenture may be exercised on any Business Day by the Holder
      by telecopying an executed and completed Conversion Notice to the Company.
      Each
      date on which a Conversion Notice is telecopied to the Company in accordance
      with the provisions of this Section 3.2 shall constitute a Conversion Date.
      The
      Company shall convert this Debenture and issue the Common Stock Issued at
      Conversion in the manner provided below in this Section 3.2, and all voting
      and
      other rights associated with the beneficial ownership of the Common Stock Issued
      at Conversion shall vest with the Holder, effective as of the Conversion Date
      at
      the time specified in the Conversion Notice. The Conversion Notice also shall
      state the name or names (with addresses) of the persons who are to become the
      holders of the Common Stock Issued at Conversion in connection with such
      conversion. As promptly as practicable after the receipt of the Conversion
      Notice as aforesaid, but in any event not more than two (2) Business Days after
      the Company’s receipt of such Conversion Notice, the Company shall (i) issue the
      Common Stock Issued at Conversion in accordance with the provisions of this
      Article 3 and (ii) cause to be mailed for delivery by overnight courier (x)
      a
      certificate or certificate(s) representing the number of Common Shares to which
      the Holder is entitled by virtue of such conversion and (y) cash, as provided
      in
      Section 3.3, in respect of any fraction of a Common Share deliverable upon
      such
      conversion. Such conversion shall be deemed to have been effected at the time
      at
      which the Conversion Notice indicates, and at such time the rights of the Holder
      of this Debenture, as such (except if and to the extent that any Principal
      Amount thereof remains unconverted), shall cease and the Person and Persons
      in
      whose name or names the Common Stock Issued at Conversion shall be issuable
      shall be deemed to have become the holder or holders of record of the Common
      Shares represented thereby, and all voting and other rights associated with
      the
      beneficial ownership of such Common Shares shall at such time vest with such
      Person or Persons. The Conversion Notice shall constitute a contract between
      the
      Holder and the Company, whereby the Holder shall be deemed to subscribe for
      the
      number of Common Shares which it will be entitled to receive upon such
      conversion and, in payment and satisfaction of such subscription (and for any
      cash adjustment to which it is entitled pursuant to Section 3.4), to surrender
      this Debenture and to release the Company from all liability thereon (except
      if
      and to the extent that any Principal Amount thereof remains unconverted). No
      cash payment aggregating less than $1.00 shall be required to be given unless
      specifically requested by the Holder.

     

    (b) If,
      at
      any time after the date of this Debenture, (i) the Company challenges, disputes
      or denies the right of the Holder hereof to effect the conversion of this
      Debenture into Common Shares or otherwise dishonors or rejects any Conversion
      Notice delivered in accordance with this Section 3.2 or (ii) any third party
      who
      is not and has never been an Affiliate of the Holder commences any lawsuit
      or
      legal proceeding or otherwise asserts any claim before any court or public
      or
      governmental authority which seeks to challenge, deny, enjoin, limit, modify,
      delay or dispute the right of the Holder hereof to effect the conversion of
      this
      Debenture into Common Shares, then the Holder shall have the right, but not
      the
      obligation, by written notice to the Company, to require the Company to promptly
      redeem this Debenture for cash at one hundred thirty-five percent (135%) of
      the
      Principal Amount thereof, together with all accrued and unpaid interest thereon
      to the date of redemption. Under any of the circumstances set forth above,
      the
      Company shall be responsible for the payment of all costs and expenses of the
      Holder, including reasonable legal fees and expenses, as and when incurred
      in
      defending itself in any such action or pursuing its rights hereunder (in
      addition to any other rights of the Holder).

    

      
        	
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    (c) The
      Holder shall be entitled to exercise its conversion privilege notwithstanding
      the commencement of any case under the Bankruptcy Code. In the event the Company
      is a debtor under the Bankruptcy Code, the Company hereby waives to the fullest
      extent permitted any rights to relief it may have under 11 U.S.C. § 362 in
      respect of the Holder’s conversion privilege. The Company hereby waives to the
      fullest extent permitted any rights to relief it may have under 11 U.S.C. § 362
      in respect of the conversion of this Debenture. The Company agrees, without
      cost
      or expense to the Holder, to take or consent to any and all action necessary
      to
      effectuate relief under 11 U.S.C. § 362.

     

    SECTION
      3.3 Fractional
      Shares.
      No
      fractional Common Shares or scrip representing fractional Common Shares shall
      be
      delivered upon conversion of this Debenture. Instead of any fractional Common
      Shares which otherwise would be delivered upon conversion of this Debenture,
      the
      Company shall pay a cash adjustment in respect of such fraction in an amount
      equal to the same fraction multiplied by the Current Market Price on the
      Conversion Date. No cash payment of less than $1.00 shall be required to be
      given unless specifically requested by the Holder.

     

    SECTION
      3.4 Adjustments.
      The
      Conversion Price and the number of shares deliverable upon conversion of this
      Debenture are subject to adjustment from time to time as follows:

     

    (i) Reclassification,
      Etc.
      In case
      the Company shall reorganize its capital, reclassify its capital stock,
      consolidate or merge with or into another Person (where the Company is not
      the
      survivor or where there is a change in or distribution with respect to the
      Common Stock of the Company), sell, convey, transfer or otherwise dispose of
      all
      or substantially all its property, assets or business to another Person, or
      effectuate a transaction or series of related transactions in which more than
      fifty percent (50%) of the voting power of the Company is disposed of (each,
      a
“Fundamental
      Corporate Change”)
      and,
      pursuant to the terms of such Fundamental Corporate Change, shares of common
      stock of the successor or acquiring corporation, or any cash, shares of stock
      or
      other securities or property of any nature whatsoever (including warrants or
      other subscription or purchase rights) in addition to or in lieu of common
      stock
      of the successor or acquiring corporation (“Other
      Property”)
      are to
      be received by or distributed to the holders of Common Stock of the Company,
      then the Holder of this Debenture shall have the right thereafter, at its sole
      option, to (x) require the Company to prepay this Debenture for cash at one
      hundred thirty-five percent (135%) of the Principal Amount thereof, together
      with all accrued and unpaid interest thereon to the date of prepayment, but
      only
      if the Fundamental Corporate Change is other than a stock split, a
      reincorporation whose sole purpose is to change the state of incorporation
      of
      the Company, or a reorganization in which the Company’s stockholders continue to
      own, in substantially the same proportion, the outstanding capital stock of
      the
      Company, (y) receive the number of shares of common stock of the successor
      or acquiring corporation or of the Company, if it is the surviving corporation,
      and Other Property as is receivable upon or as a result of such
      Fundamental Corporate Change by a holder of the number of shares of Common
      Stock
      into which the outstanding portion of this Debenture may be converted at the
      Conversion Price applicable immediately prior to such Fundamental Corporate
      Change, or (z) require the Company, or such successor, resulting or
      purchasing corporation, as the case may be, to, without benefit of any
      additional consideration therefor, execute and deliver to the Holder a debenture
      with substantial identical rights, privileges, powers, restrictions and other
      terms as this Debenture in an amount equal to the amount outstanding under
      this
      Debenture immediately prior to such Fundamental Corporate Change. For purposes
      hereof, “common
      stock of the successor or acquiring corporation”
      shall
      include stock of such corporation of any class which is not preferred as to
      dividends or assets over any other class of stock of such corporation and which
      is not subject to prepayment and shall also include any evidences of
      indebtedness, shares of stock or other securities which are convertible into
      or
      exchangeable for any such stock, either immediately or upon the arrival of
      a
      specified date or the happening of a specified event and any warrants or other
      rights to subscribe for or purchase any such stock. The foregoing provisions
      shall similarly apply to successive Fundamental Corporate Changes.

    

      
        	
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    SECTION
      3.5 Certain
      Conversion Limits.

     

    The
      Company shall not effect any conversion of this Debenture, and a Holder shall
      not have the right to convert any portion of this Debenture, to the extent
      that
      after giving effect to the conversion, as set forth on the applicable Conversion
      Notice, such Holder (together with such Holder’s Affiliates, and any other
      person or entity acting as a group together with such Holder or any of such
      Holder’s Affiliates) would beneficially own in excess of the Beneficial
      Ownership Limitation (as defined below). For purposes of the foregoing sentence,
      the number of shares of Common Stock beneficially owned by such Holder and
      its
      Affiliates shall include the number of shares of Common Stock issuable upon
      conversion of this Debenture with respect to which such determination is being
      made, but shall exclude the number of shares of Common Stock which are issuable
      upon (A) conversion of the remaining, unconverted principal amount of this
      Debenture beneficially owned by such Holder or any of its Affiliates and (B)
      exercise or conversion of the unexercised or unconverted portion of any other
      securities of the Company subject to a limitation on conversion or exercise
      analogous to the limitation contained herein (including, without limitation,
      any
      other Debentures or warrants to purchase shares of the Company’s Common Stock)
      beneficially owned by such Holder or any of its Affiliates. Except as set forth
      in the preceding sentence, for purposes of this Section 3.5, beneficial
      ownership shall be calculated in accordance with Section 13(d) of the Exchange
      Act and the rules and regulations promulgated thereunder. To the extent that
      the
      limitation contained in this Section 3.5 applies, the determination of whether
      this Debenture is convertible (in relation to other securities owned by such
      Holder together with any Affiliates) and of which principal amount of this
      Debenture is convertible shall be in the sole discretion of such Holder, and
      the
      submission of a Conversion Notice shall be deemed to be such Holder’s
      determination of whether this Debenture may be converted (in relation to other
      securities owned by such Holder together with any Affiliates) and which
      principal amount of this Debenture is convertible, in each case subject to
      such
      aggregate percentage limitations. To ensure compliance with this restriction,
      each Holder will be deemed to represent to the Company each time it delivers
      a
      Conversion Notice that such Conversion Notice has not violated the restrictions
      set forth in this paragraph and the Company shall have no obligation to verify
      or confirm the accuracy of such determination. In addition, a determination
      as
      to any group status as contemplated above shall be determined in accordance
      with
      Section 13(d) of the Exchange Act and the rules and regulations promulgated
      thereunder. For purposes of this Section 3.5, in determining the number of
      outstanding shares of Common Stock, a Holder may rely on the number of
      outstanding shares of Common Stock provided to the Holder in writing by the
      Company after Holder makes such request or in the event that the Company files,
      any of the following with the Securities and Exchange Commission, the most
      recent of the following: (A) the Company's most recent Form 10-QSB or Form
      10-KSB, as the case may be, (B) a more recent public announcement by the
      Company; or (C) a more recent notice by the Company or the Company’s transfer
      agent setting forth the number of shares of Common Stock outstanding. Upon
      the
      written or oral request of a Holder, the Company shall within two Trading Days
      confirm orally and in writing to such Holder the number of shares of Common
      Stock then outstanding on the records of the Company as of the date of the
      request. In any case, the number of outstanding shares of Common Stock shall
      be
      determined after giving effect to the conversion or exercise of securities
      of
      the Company, including this Debenture, by such Holder or its Affiliates since
      the date as of which such number of outstanding shares of Common Stock was
      reported. The “Beneficial
      Ownership Limitation”
shall
      be 4.99% of the number of shares of the Common Stock outstanding immediately
      after giving effect to the issuance of shares of Common Stock issuable upon
      conversion of this Debenture held by the Holder. The Beneficial Ownership
      Limitation provisions of this Section 3.5 may be waived by such Holder, at
      the
      election of such Holder, upon not less than 61 days’ prior notice to the
      Company, to, at the sole discretion of the Holder, either change the Beneficial
      Ownership Limitation to (i) 9.99% of the number of shares of the Common Stock
      outstanding immediately after giving effect to the issuance of shares of Common
      Stock upon conversion of the Debenture held by the Holder and the provisions
      of
      this Section 3.5 shall continue to apply, or (ii) remove any Beneficial
      Ownership Limitation under this Debenture. The provisions of this paragraph
      shall be construed and implemented in a manner otherwise than in strict
      conformity with the terms of this Section 3.5 to correct this paragraph (or
      any
      portion hereof) which may be defective or inconsistent with the intended
      Beneficial Ownership Limitation herein contained or to make changes or
      supplements necessary or desirable to properly give effect to such limitation.
      If any court of competent jurisdiction shall determine that the foregoing
      limitation is ineffective to prevent a Holder from being deemed the beneficial
      owner of more than 9.99% of the then outstanding shares of Common Stock, then
      the Company shall prepay such portion of this Debenture as shall cause such
      Holder not to be deemed the beneficial owner of more than 9.99% of the then
      outstanding shares of Common Stock. Upon such determination by a court of
      competent jurisdiction, the Holder shall have no interest in or rights under
      such portion of the Debenture. Any and all interest paid on or prior to the
      date
      of such determination shall be deemed interest paid on the remaining portion
      of
      this Debenture held by the Holder. Such prepayment shall be for cash at a
      prepayment price of one hundred fifty percent (150%) of the Principal Amount
      thereof, together with all accrued and unpaid interest thereon to the date
      of
      prepayment. The limitations contained in this paragraph shall apply to a
      successor holder of this Debenture.

    

      
        	
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    SECTION
      3.6 Surrender
      of Debentures.
      Upon
      any redemption of this Debenture pursuant to Sections 3.2, 3.5 or 6.2, or upon
      maturity pursuant to Section 2.4, the Holder shall either deliver this Debenture
      by hand to the Company at its principal executive offices or surrender the same
      to the Company at such address by nationally recognized overnight courier.
      Payment of the redemption price or the amount due on maturity specified in
      Section 2.4, shall be made by the Company to the Holder against receipt of
      this
      Debenture (as provided in this Section 3.5) by wire transfer of immediately
      available funds to such account(s) as the Holder shall specify by written notice
      to the Company. If payment of such redemption price is not made in full by
      the
      redemption date, or the amount due on maturity is not paid in full by the
      Maturity Date, the Holder shall again have the right to convert this Debenture
      as provided in Article 3 hereof or to declare an Event of Default.

    

      
        	
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    ARTICLE
      4

    STATUS;
      RESTRICTIONS ON TRANSFER

     

    SECTION
      4.1 Status
      of Debenture.
      This
      Debenture constitutes a legal, valid and binding obligation of the Company,
      enforceable in accordance with its terms subject, as to enforceability, to
      general principles of equity and to principles of bankruptcy, insolvency,
      reorganization and other similar laws of general applicability relating to
      or
      affecting creditors’ rights and remedies generally.

     

    SECTION
      4.2 Restrictions
      on Transfer.
      This
      Debenture, and any Common Shares deliverable upon the conversion hereof, have
      not been registered under the Securities Act. The Holder by accepting this
      Debenture agrees that this Debenture and the shares of Common Stock to be
      acquired as interest on and upon conversion of this Debenture may not be
      assigned or otherwise transferred unless and until (i) the Company has received
      the opinion of counsel for the Holder that this Debenture or such shares may
      be
      sold pursuant to an exemption from registration under the Securities Act,
      provided that the Company will not require opinions of counsel for transactions
      involving transfers to Affiliates of the Holder or pursuant to Rule 144
      promulgated by the SEC under the Securities Act, except in unusual
      circumstances, or when the Company’s transfer agent requires such opinion; or
      (ii) a registration statement relating to this Debenture or such shares has
      been
      filed by the Company and declared effective by the SEC. 

     

    Each
      certificate for shares of Common Stock deliverable hereunder shall bear a legend
      as follows unless and until such securities have been sold pursuant to an
      effective registration statement under the Securities Act:

     

    “The
      securities represented by this certificate have not been registered under the
      Securities Act of 1933, as amended (the “Securities Act”). The securities may
      not be offered for sale, sold or otherwise transferred except (i) pursuant
      to an
      effective registration statement under the Securities Act or (ii) pursuant
      to an
      exemption from registration under the Securities Act in respect of which the
      issuer of this certificate has received an opinion of counsel reasonably
      satisfactory to the issuer of this certificate to such effect. Copies of the
      agreement covering both the purchase of the securities and restrictions on
      their
      transfer may be obtained at no cost by written request made by the holder of
      record of this certificate to the Secretary of the issuer of this certificate
      at
      the principal executive offices of the issuer of this certificate.”

     

    ARTICLE
      5

    COVENANTS

     

    SECTION
      5.1 Conversion.
      The
      Company shall cause the transfer agent, not later than two (2) Business Days
      after the Company’s receipt of a Conversion Notice, to issue and deliver to the
      Holder the requisite shares of Common Stock Issued at Conversion. 

    

      
        	
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    SECTION
      5.2 Notice
      of Default.
      If any
      one or more events occur which constitute or which, with notice, lapse of time,
      or both, would constitute an Event of Default, the Company shall forthwith
      give
      notice to the Holder, specifying the nature and status of the Event of Default
      or such other event(s), as the case may be.

     

    SECTION
      5.3 Payment
      of Obligations.
      So long
      as this Debenture shall be outstanding, the Company shall pay, extend, or
      discharge at or before maturity, all its respective material obligations and
      liabilities, including, without limitation, tax liabilities, except where the
      same may be contested in good faith by appropriate proceedings.

     

    SECTION
      5.4 Compliance
      with Laws.
      So long
      as this Debenture shall be outstanding, the Company shall comply with all
      applicable laws, ordinances, rules, regulations and requirements of governmental
      authorities, except for such noncompliance which would not have a material
      adverse effect on the business, properties, prospects, condition (financial
      or
      otherwise) or results of operations of the Company and the
      Subsidiaries.

     

    SECTION
      5.5 Inspection
      of Property, Books and Records.
      So long
      as this Debenture shall be outstanding, the Company shall keep proper books
      of
      record and account in which full, true and correct entries shall be made of
      all
      material dealings and transactions in relation to its business and activities
      and shall permit representatives of the Holder at the Holder’s expense to visit
      and inspect any of its respective properties, to examine and make abstracts
      from
      any of its respective books and records, not reasonably deemed confidential
      by
      the Company, and to discuss its respective affairs, finances and accounts with
      its respective officers and independent public accountants, all at such
      reasonable times and as often as may reasonably be desired.

     

    SECTION
      5.6 Reservation
      of Stock Issuable Upon Conversion.
      The
      Company shall at all times reserve and keep available out of its authorized
      but
      unissued shares of Common Stock, solely for the purpose of effecting the
      conversion of this Debenture, such number of its shares of Common Stock as
      shall
      from time to time be sufficient to effect the conversion of this Debenture;
      and
      if at any time the number of authorized but unissued shares of Common Stock
      shall not be sufficient to effect the conversion of this Debenture, in addition
      to such other remedies as shall be available to the holder of this Debenture,
      the Company will take such corporate action as may, in the opinion of its
      counsel, be necessary to increase its authorized but unissued shares of Common
      Stock to such number of shares as shall be sufficient for such purposes,
      including, without limitation, engaging in best efforts to obtain the requisite
      shareholder approval to file an amendment to the charter of the
      Company.

     

    ARTICLE
      6

    EVENTS
      OF DEFAULT; REMEDIES

     

    SECTION
      6.1 Events
      of Default.
      “Event
      of Default”
      wherever
      used herein means any one of the following events:

     

    (i) the
      Company shall default in the payment of principal of or interest on this
      Debenture as and when the same shall be due and payable and, in the case of
      an
      interest payment default, such default shall continue for five (5) Business
      Days
      after the date such interest payment was due, or the Company shall fail to
      perform or observe any other material covenant, agreement, term, provision,
      undertaking or commitment under this Debenture or the Securities Purchase
      Agreement and such default shall continue for a period of ten (10) Business
      Days
      after the delivery to the Company of written notice that the Company is in
      default hereunder or thereunder;

    

      
        	
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    (ii) any
      of
      the representations, warranties, or covenants made by the Company herein, in
      the
      Securities Purchase Agreement or in any certificate or financial or other
      written statements heretofore or hereafter furnished by or on behalf of the
      Company in connection with the execution and delivery of this Debenture or
      the
      Securities Purchase Agreement shall be false or misleading in a material respect
      on the Closing Date; 

     

    (iii) under
      the
      laws of any jurisdiction not otherwise covered by clauses (iv) and (v) below,
      the Company or any Subsidiary (A) becomes insolvent or generally not able to
      pay
      its debts as they become due, (B) admits in writing its inability to pay its
      debts generally or makes a general assignment for the benefit of creditors,
      (C)
      institutes or has instituted against it any proceeding seeking (x) to adjudicate
      it a bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
      arrangement, adjustment, protection, relief or composition of it or its debts
      under any law relating to bankruptcy, insolvency, reorganization or relief
      of
      debtors including any plan of compromise or arrangement or other corporate
      proceeding involving or affecting its creditors or (z) the entry of an order
      for
      relief or the appointment of a receiver, trustee or other similar person for
      it
      or for any substantial part of its properties and assets, and in the case of
      any
      such official proceeding instituted against it (but not instituted by it),
      either the proceeding remains undismissed or unstayed for a period of sixty
      (60)
      calendar days, or any of the actions sought in such proceeding (including the
      entry of an order for relief against it or the appointment of a receiver,
      trustee, custodian or other similar official for it or for any substantial
      part
      of its properties and assets) occurs or (D) takes any corporate action to
      authorize any of the above actions; 

     

    (iv) the
      entry
      of a decree or order by a court having jurisdiction in the premises adjudging
      the Company or any Subsidiary a bankrupt or insolvent, or approving as properly
      filed a petition seeking reorganization, arrangement, adjustment or composition
      of or in respect of the Company under the Bankruptcy Code or any other
      applicable Federal or state law, or appointing a receiver, liquidator, assignee,
      trustee or sequestrator (or other similar official) of the Company or of any
      substantial part of its property, or ordering the winding-up or liquidation
      of
      its affairs, and any such decree or order continues and is unstayed and in
      effect for a period of sixty (60) calendar days;

     

    (v) the
      institution by the Company or any Subsidiary of proceedings to be adjudicated
      a
      bankrupt or insolvent, or the consent by it to the institution of bankruptcy
      or
      insolvency proceedings against it, or the filing by it of a petition or answer
      or consent seeking reorganization or relief under the Bankruptcy Code or any
      other applicable federal or state law, or the consent by it to the filing of
      any
      such petition or to the appointment of a receiver, liquidator, assignee, trustee
      or sequestrator (or other similar official) of the Company or of any substantial
      part of its property, or the making by it of an assignment for the benefit
      of
      creditors, or the admission by it in writing of its inability to pay its debts
      generally as and when they become due, or the taking of corporate action by
      the
      Company in furtherance of any such action; 

    

      
        	
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    (vi) a
      final
      judgment or final judgments for the payment of money shall have been entered
      by
      any court or courts of competent jurisdiction against the Company and remains
      undischarged for a period (during which execution shall be effectively stayed)
      of thirty (30) days, provided
      that the
      aggregate amount of all such judgments at any time outstanding (to the extent
      not paid or to be paid, as evidenced by a written communication to that effect
      from the applicable insurer, by insurance) exceeds One Hundred Thousand Dollars
      ($100,000);

     

    (vii) it
      becomes unlawful for the Company to perform or comply with its obligations
      under
      this Debenture or the Securities Purchase Agreement in any respect;

     

    (viii) the
      Common Shares shall no longer be traded in the over the counter market via
      the
      NASDAQ OTCBB (the “Trading
      Market”
      or, to
      the extent the Company becomes eligible to list its Common Stock on any other
      national security exchange or quotation system, upon official notice of listing
      on any such exchange or system, as the case may be, it shall be the “Trading
      Market”) or suspended from trading on the Trading Market, and shall not be
      reinstated, relisted or such suspension lifted, as the case may be, within
      five
      (5) days; 

     

    (ix) the
      Company shall fail to timely file all reports required to be filed by it with
      the Commission (as defined in the Securities Purchase Agreement) pursuant to
      Section 13 or 15(d) of the Exchange Act (as defined in the Securities Purchase
      Agreement), or otherwise required by the Exchange Act; or

     

    (x) the
      Company shall default (giving effect to any applicable grace period) in the
      payment of principal or interest as and when the same shall become due and
      payable, under any indebtedness, individually or in the aggregate, of more
      than
      Fifty Thousand Dollars ($50,000) (which, for purposes of clarity, shall not
      include any of the obligations set forth on Schedule 6.1(x) or any trade
      payables or operating expenses arising in the ordinary course of business
      hereafter).

     

    SECTION
      6.2 Acceleration
      of Maturity; Rescission and Annulment.
      If an
      Event of Default occurs and is continuing, then and in every such case the
      Holder may, in Holder’s sole and absolute discretion, by a notice in writing to
      the Company, rescind any outstanding Conversion Notice and declare that any
      or
      all amounts owing or otherwise outstanding under this Debenture are immediately
      due and payable and upon any such declaration this Debenture or such portion
      thereof, as applicable, shall become immediately due and payable in cash at
      a
      price of one hundred thirty-five percent (135%) of the Principal Amount thereof,
      together with all accrued and unpaid interest thereon to the date of payment;
      provided,
      however,
      in the
      case of any Event of Default described in clauses (iii), (iv), (v) or (vii)
      of
      Section 6.1, all amounts owing or otherwise outstanding under this Debenture
      automatically shall become immediately due and payable without the necessity
      of
      any notice or declaration as aforesaid. In the event that the Company is
      obligated to pay any amount to the Holder in connection with an acceleration
      of
      the maturity of this Debenture as set forth herein, the Company shall first
      apply against such amount an amount equal to the outstanding amount owed by
      the
      Holder to the Company under the Promissory Note, if any, and the amount
      otherwise owed by the Company to the Holder in connection with an acceleration
      of the maturity of this Debenture shall be reduced by the outstanding amount
      owed by the Holder to the Company under the Promissory Note, with the Promissory
      Note deemed paid by Holder to the extent of and with respect to such amount,
      and
      if the amount due from the Company to the Holder in connection with an
      acceleration of the maturity of this Debenture is equal to or greater than
      the
      outstanding amount owed under the Promissory Note, the Company shall cancel
      and
      deem the Promissory Note as paid in full in connection with the application
      of
      the amount owed by the Holder to the Company under Promissory Note against
      the
      amount otherwise owed by the Company to the Holder hereunder. The Company shall
      immediately pay in cash to the Holder any remaining amount owed by the Company
      to the Holder in connection with the acceleration of the maturity of this
      Debenture as described herein, after the application of the outstanding amount
      owed under the Promissory Note, if any, to such obligation.

    

      
        	
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    SECTION
      6.3 Late
      Payment Penalty.
      If any
      portion of the principal of or interest on this Debenture shall not be paid
      within ten (10) days of when it is due, the Discount Multiplier under this
      Debenture shall decrease by one percentage point (1%) for each period of ten
      (10) Business Days that any portion of such amount remains unpaid by the Company
      for all conversions of this Debenture thereafter.

     

    SECTION
      6.4 Maximum
      Interest Rate. Notwithstanding
      anything herein to the contrary, if at any time the applicable interest rate
      as
      provided for herein shall exceed the maximum lawful rate which may be contracted
      for, charged, taken or received by the Holder in accordance with any applicable
      law (the “Maximum
      Rate”),
      the
      rate of interest applicable to this Debenture shall be limited to the Maximum
      Rate. To the greatest extent permitted under applicable law, the Company hereby
      waives and agrees not to allege or claim that any provisions of this Debenture
      could give rise to or result in any actual or potential violation of any
      applicable usury laws.

     

    SECTION
      6.5 Remedies
      Not Waived.
      No
      course of dealing between the Company and the Holder or any delay in exercising
      any rights hereunder shall operate as a waiver by the Holder.

     

    SECTION
      6.6 Remedies. The
      Company 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 Company acknowledges 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
      Company of the provisions of this Debenture, that the Holder shall be entitled
      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 specifically
      the terms and provisions thereof, without the necessity of showing economic
      loss
      and without any bond or other security being required. 

     

    SECTION
      6.7 Payment
      of Certain Amounts. Whenever
      pursuant to this Debenture the Company is required to pay an amount in excess
      of
      the Principal Amount plus accrued and unpaid interest, the Company and the
      Holder agree that the actual damages to the Holder from the receipt of cash
      payment on this Debenture may be difficult to determine and the amount to be
      so
      paid by the Company 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 to earn a return from the sale of shares of Common Stock
      acquired upon conversion of this Debenture at a price in excess of that price
      paid for such shares pursuant to this Debenture. The Company and the Holder
      hereby agree that such amount of stipulated damages is not 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.

    

      
        	
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    SECTION
      6.8 Filing
      of Form 8-K. On
      or
      before the fourth Business Day following the date hereof, the Company shall
      file
      a Current Report on Form 8-K describing the terms of the transactions
      contemplated by the Documents (as defined in the Securities Purchase Agreement),
      as required by the terms of the Securities Purchase Agreement, in the form
      required by the Exchange Act and attaching the material Documents (including,
      without limitation, the Securities Purchase Agreement and this Debenture) as
      exhibits to such filing (the “8-K
      Filing”).
      In
      the alternative, the Company may include the information that would have been
      required in the 8-K Filing in the Company’s Form 10-KSB filing (the
“10-KSB
      Filing”),
      if
      such form is filed within four Business Days following the date hereof. In
      the
      event that the Company does not file the 8-K Filing or the 10-KSB Filing within
      four Business Days following the date hereof, the Discount Multiplier under
      this
      Debenture shall decrease by one percentage point (1%) for each period of five
      Business Days that the 8-K Filing or the 10-KSB Filing is not filed by the
      Company following the date hereof for all conversions of this Debenture
      thereafter.

     

    ARTICLE
      7

    INTEREST
      RATE ADJUSTMENT

     

    SECTION
      7.1 Interest
      Rate Adjustment.
      In the
      event that the Common Stock shall trade on the Trading Market at a price per
      share that is $0.065 per share or lower at any time during the six month period
      commencing on the date hereof and ending on the six month anniversary of the
      date hereof (as
      adjusted for any stock splits, stock dividends, combinations, subdivisions,
      recapitalizations or the like),
      then
      (i) the Interest Rate shall immediately be increased to Nine and Three-Quarters
      Percent (9 3⁄4 %) and shall remain at such level for the duration of this
      Debenture; and (ii) the Company shall, within three Business Days of the written
      request of the Holder prepay to the Holder the amount of interest that would
      be
      otherwise paid under this Debenture from the date of such written request
      through the Maturity Date (such amount referred to herein as the “Interest
      Prepayment”).
      In
      the event that after the payment by the Company of the Interest Prepayment
      all
      or any of the Principal Amount of this Debenture is converted by Holder or
      redeemed pursuant to the terms of this Debenture prior to the Maturity Date,
      then the Holder shall repay the corresponding pro rata portion of the Interest
      Prepayment equal to the amount of the Interest Prepayment that is represented
      by
      such portion of the Principal Amount at such time that that is so converted
      or
      redeemed (taking into account both the amount of the Principal Amount so
      converted or redeemed and the date upon which such amount is so converted or
      redeemed).

    

      
        	
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    ARTICLE
      8

    MISCELLANEOUS

     

    SECTION
      8.1 Notice
      of Certain Events.
      In the
      case of the occurrence of any event described in Section 3.4 of this Debenture,
      the Company shall cause to be mailed to the Holder of this Debenture at its
      last
      address as it appears in the Company’s security registry, at least twenty (20)
      days prior to the applicable record, effective or expiration date hereinafter
      specified (or, if such twenty (20) days’ notice is not possible, at the earliest
      possible date prior to any such record, effective or expiration date), a notice
      thereof, including, if applicable, a statement of (y) the date on which a record
      is to be taken for the purpose of such dividend, distribution, issuance or
      granting of rights, options or warrants, or if a record is not to be taken,
      the
      date as of which the holders of record of Common Stock to be entitled to such
      dividend, distribution, issuance or granting of rights, options or warrants
      are
      to be determined or (z) the date on which such reclassification, consolidation,
      merger, sale, transfer, dissolution, liquidation or winding-up is expected
      to
      become effective, and the date as of which it is expected that holders of record
      of Common Stock will be entitled to exchange their shares for securities, cash
      or other property deliverable upon such reclassification, consolidation, merger,
      sale transfer, dissolution, liquidation or winding-up. Failure or delay in
      delivering such notice shall not affect the validity of such action
      taken.

     

    SECTION
      8.2 Register.
      The
      Company shall keep at its principal office a register in which the Company
      shall
      provide for the registration of this Debenture. Upon any transfer of this
      Debenture in accordance with Articles 2 and 4 hereof, the Company shall register
      such transfer on the Debenture register.

     

    SECTION
      8.3 Withholding.
      To the
      extent required by applicable law, the Company may withhold amounts for or
      on
      account of any taxes imposed or levied by or on behalf of any taxing authority
      in the United States having jurisdiction over the Company from any payments
      made
      pursuant to this Debenture.

     

    SECTION
      8.4 Transmittal
      of Notices.
      Except
      as may be otherwise provided herein, any notice or other communication or
      delivery required or permitted hereunder shall be in writing and shall be
      delivered personally, or sent by telecopier machine or by a nationally
      recognized overnight courier service, and shall be deemed given when so
      delivered personally, or by telecopier machine or overnight courier service
      as
      follows:

     

    (1) If
      to the
      Company, to:

    

    TraceGuard
      Technologies, Inc.

    330
      Madison Avenue, 9th
      Floor

    New
      York,
      New York 10017

    Telephone: 866-401-5969

    Facsimile: 011-972-57-797-5364

     

    (2) With
      a
      copy to:

     

    Moses
      & Singer LLP.

    405
      Lexington Avenue, 12th
      Floor

    New
      York,
      New York 10474-1299

    Attention:
      Allan Grauberd

    Telephone: 212-554-7883

    Facsimile: 917-206-4381

    

      
        	
                ____________

              	
                ____________

              
	
                Initials

              	
                Initials

              

      

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (3) If
      to the
      Holder, to:

     

    Golden
      Gate Investors, Inc.

    1150
      Silverado Street, Suite 220

    La
      Jolla,
      California 92037

    Telephone: 858-551-8789

    Facsimile: 858-551-8779

     

    Each
      of
      the Holder or the Company may change the foregoing address by notice given
      pursuant to this Section 8.4.

     

    SECTION
      8.5 Attorneys’
      Fees.
      Should
      any party hereto employ an attorney for the purpose of enforcing or construing
      this Debenture, or any judgment based on this Debenture, in any legal proceeding
      whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief
      or
      other litigation, the prevailing party shall be entitled to receive from the
      other party or parties thereto reimbursement for all reasonable attorneys'
      fees
      and all reasonable costs, including but not limited to service of process,
      filing fees, court and court reporter costs, investigative costs, expert witness
      fees, and the cost of any bonds, whether taxable or not, and that such
      reimbursement shall be included in any judgment or final order issued in that
      proceeding. The "prevailing party" means the party determined by the court
      to
      most nearly prevail and not necessarily the one in whose favor a judgment is
      rendered. 

     

    SECTION
      8.6 Governing
      Law.
      This
      Debenture shall be governed by, and construed in accordance with, the laws
      of
      the State of California (without giving effect to conflicts of laws principles).
      With respect to any suit, action or proceedings relating to this Debenture,
      the
      Company irrevocably submits to the exclusive jurisdiction of the courts of
      the
      State of California sitting in San Diego and the United States District Court
      located in the City of San Diego and hereby waives, to the fullest extent
      permitted by applicable law, any claim that any such suit, action or proceeding
      has been brought in an inconvenient forum. Subject to applicable law, the
      Company agrees that final judgment against it in any legal action or proceeding
      arising out of or relating to this Debenture shall be conclusive and may be
      enforced in any other jurisdiction within or outside the United States by suit
      on the judgment, a certified copy of which judgment shall be conclusive evidence
      thereof and the amount of its indebtedness, or by such other means provided
      by
      law.

     

    SECTION
      8.7 Waiver
      of Jury Trial.
      To the
      fullest extent permitted by law, each of the parties hereto hereby knowingly,
      voluntarily and intentionally waives its respective rights to a jury trial
      of
      any claim or cause of action based upon or arising out of this Debenture or
      any
      other document or any dealings between them relating to the subject matter
      of
      this Debenture and other documents. Each party hereto (i) certifies that neither
      of their respective representatives, agents or attorneys has represented,
      expressly or otherwise, that such party would not, in the event of litigation,
      seek to enforce the foregoing waivers and (ii) acknowledges that it has been
      induced to enter into this Debenture by, among other things, the mutual waivers
      and certifications herein.

    

      
        	
                ____________

              	
                ____________

              
	
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    SECTION
      8.8 Headings.
      The
      headings of the Articles and Sections of this Debenture are inserted for
      convenience only and do not constitute a part of this Debenture.

     

    SECTION
      8.9 Payment
      Dates.
      Whenever any payment hereunder shall be due on a day other than a Business
      Day,
      such payment shall be made on the next succeeding Business Day.

     

    SECTION
      8.10 Binding
      Effect.
      Each
      Holder by accepting this Debenture agrees to be bound by and comply with the
      terms and provisions of this Debenture.

     

    SECTION
      8.11 No
      Stockholder Rights.
      Except
      as otherwise provided herein, this Debenture shall not entitle the Holder to
      any
      of the rights of a stockholder of the Company, including, without limitation,
      the right to vote, to receive dividends and other distributions, or to receive
      any notice of, or to attend, meetings of stockholders or any other proceedings
      of the Company, unless and to the extent converted into shares of Common Stock
      in accordance with the terms hereof.

     

    SECTION
      8.12 Facsimile
      Execution.
      Facsimile execution of this Debenture shall be deemed original.

     

    IN
      WITNESS WHEREOF, the Company has caused this Debenture to be signed by its
      duly
      authorized officer on the date of this Debenture.

    

      
        	
                TraceGuard
                  Technologies, Inc.

              
	 
	
                By:
                  _______________________________________________

              
	 
	
                Name:
                  ____________________________________________

              
	 
	
                Title:
                  _____________________________________________

              

      

    

    

      
        	
                ____________

              	
                ____________

              
	
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    EXHIBIT A

    DEBENTURE
      CONVERSION NOTICE

    

    
      	TO:	
              TraceGuard
                Technologies, Inc.

            

      	 	330
              Madison Avenue, 9th Floor

      	 	New
              York, New York 10017

    

     

    The
      undersigned owner of the Convertible Debenture due April 18, 2012 (the
“Debenture”)
      issued
      by TraceGuard Technologies, Inc. (the “Company”)
      hereby
      irrevocably exercises its option to convert $__________ Principal Amount of
      the
      Debenture into shares of Common Stock in accordance with the terms of the
      Debenture. The undersigned hereby instructs the Company to convert the portion
      of the Debenture specified above into shares of Common Stock Issued at
      Conversion in accordance with the provisions of Article 3 of the Debenture.
      The
      undersigned directs that the Common Stock and certificates therefor deliverable
      upon conversion, the Debenture reissued in the Principal Amount not being
      surrendered for conversion hereby, [the check or shares of Common Stock in
      payment of the accrued and unpaid interest thereon to the date of this Notice,]
      together with any check in payment for fractional Common Stock, be registered
      in
      the name of and/or delivered to the undersigned unless a different name has
      been
      indicated below. All capitalized terms used and not defined herein have the
      respective meanings assigned to them in the Debenture. The conversion pursuant
      hereto shall be deemed to have been effected at the date and time specified
      below, and at such time the rights of the undersigned as a Holder of the
      Principal Amount of the Debenture set forth above shall cease and the Person
      or
      Persons in whose name or names the Common Stock Issued at Conversion shall
      be
      registered shall be deemed to have become the holder or holders of record of
      the
      Common Shares represented thereby and all voting and other rights associated
      with the beneficial ownership of such Common Shares shall at such time vest
      with
      such Person or Persons.

     

    Date
      and
      time: _______________________

     

    ___________________________________

     

    By:
      _______________________________

     

    Title:
      _____________________________

     

    Fill
      in
      for registration of Debenture:

    Please
      print name and address

    (including
      ZIP code number):

     

    ______________________________

     

    ______________________________

     

    ______________________________

     

    
      
         

      

      
        A-

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