Document:

EX-10.2

    

    SECURITIES
      PURCHASE AGREEMENT

    

    THIS SECURITIES
      PURCHASE AGREEMENT
      (hereinafter sometimes referred to as the “Agreement”) dated as of the 8th day
      December, 2005 by and between ENERTECK CORPORATION, a Delaware corporation
      (the
“Company”), and BATL BIOENERGY LLC, a Delaware limited liability company
      (“BATL”).

    

    W
      I T N E S S E T H:

    

    WHEREAS,
      BATL
      desires to make an investment in the Company, and the Company desires to accept
      the investment from BATL, pursuant to the terms and subject to the conditions
      set forth herein; 

    

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants and agreements set forth
      herein, the parties hereto, intending to be legally bound, hereby agree as
      follows:

    

    ARTICLE
      ONE

    

    PURCHASE
      AND SALE OF COMMON STOCK

    

    1.1. Purchase
      and Sale of Common Stock.
      Upon
      the terms and subject to the conditions of this Agreement, BATL hereby agrees
      to
      purchase from the Company, and the Company hereby agrees to issue and sell
      to
      BATL, for the aggregate purchase price of $3,000,000 (the “Purchase Price”), (i)
      2,450,000 shares (the “BATL Shares”) of the common stock of the Company, $.001
      par value (the “Common Stock”), and (ii) a warrant (the “BATL Warrant”) expiring
      in five (5) years from the Closing Date (as hereinafter defined) to purchase
      an
      additional 1,000,000 shares of Common Stock at an exercise price of $2.00 per
      share pursuant to a Warrant substantially in the form as annexed hereto as
      Exhibit
      A
      (the
      BATL Shares, the BATL Warrant and the shares of Common Stock underlying the
      BATL
      Warrant, are collectively referred to herein as the “BATL Securities”).

    

    1.2. Closing.
      The
      closing (the “Closing”) in respect of the purchase and sale of the BATL Shares
      and the BATL Warrant shall take place on or before December 15, 2005 at a time
      (the “Closing Date”) and place as the parties shall agree. 

    

    1.3. Closing
      Documents. At
      the
      Closing:

    

    (a)
       The
      Company shall deliver to BATL:

    

    (i) a
      duly
      executed certificate or certificates representing the BATL Shares and BATL
      Warrant, registered in the name of BATL; and

     

    (ii) a
      legal
      opinion of counsel to the Company, addressed to BATL in the form of Annex A
      hereto; and

    

    
      
         

      

      
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    (iii) the
      certificate referred to in Section 1.4(a)(ix) hereof.

    

    (b) BATL
      shall deliver to the Company:

    

    (i) A
      bank
      check from a N.Y. Clearing House Member Bank payable to the order of the Company
      or a wire transfer in immediately available funds to a Company bank account
      as
      designated by the Company, in each case in the amount of the Purchase Price;
      

    

    (ii) a
      duly
      completed and executed Accredited Investor Questionnaire acceptable to the
      Company; and 

    

      (ii) The
      certificate referred to in Section 1.4(b)(iv) hereof.

    

    1.4 Conditions
      to Closing.

    

    (a) Conditions
      to Obligations of BATL.
      The
      obligation of BATL to purchase the BATL Shares and the BATL Warrant is subject
      to the satisfaction on or prior to the Closing of the following conditions,
      any
      or all of which may be waived by BATL:

    

    (i) No
      order
      of any governmental body shall be in effect that restrains or prohibits the
      issuance of the BATL Shares or the BATL Warrant.

    

    (ii) The
      Company shall have delivered to BATL (i) certificates representing the BATL
      Shares and the BATL Warrant, duly registered in the name of BATL and (ii) the
      Company counsel opinion referred to in Section 1.3(a)(ii).

    

    (iii) the
      BATL
      Shares and the shares underlying the BATL Warrant shall have been duly listed,
      if required, for trading, on the OTC Bulletin Board;

    

    (iv) Since
      September 30, 2005, no event or series of events shall have occurred that
      reasonably would be expected to have a Material Adverse Effect (as defined
      in
      Section 2.1.2). 

    

    (v) The
      Company shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by this Agreement to
      be
      performed, satisfied or complied with by it at or prior to the Closing
      Date.

    

    (vi) BATL
      shall not have become aware of any information or other matter with respect
      to
      legal matters affecting the Company that is inconsistent with the financial
      and
      other information disclosed to BATL prior to the date hereof, in a manner that
      constitutes or would reasonably be expected to have a Material Adverse Effect.
      

    

    (vii) The
      representations and warranties of the Company contained in this Agreement shall
      be true and correct on and as of the Closing Date with the same effect as though
      such representations and warranties had been made on and as of the Closing
      Date;

     

    
      
         

      

      
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    (viii). On
      or
      prior to the Closing Date, there shall not have occurred any of the following:
      (i) a suspension or material limitation in the trading of securities generally
      on the New York Stock Exchange, NASDAQ or the OTC Bulletin Board; (ii) a general
      moratorium on commercial banking activities in New York declared by the
      applicable banking authorities; or (iii) the outbreak or escalation of
      hostilities involving the United States, or the declaration by the United States
      of a national emergency or war; 

    

    (ix) The
      Company shall have delivered to BATL, at the Closing, a certificate dated the
      Closing Date, duly executed by the chief executive officer of the Company to
      the
      effect that all of the foregoing conditions have been met and that BATL’s
      nominee to the Board in accordance with Section 3.1.1 has been elected to the
      Board.

    

    (b) Conditions
      to Obligations of the Company.
      The
      obligation of the Company to issue and sell the BATL Shares and the BATL Warrant
      is subject to the satisfaction on or prior to the Closing of the following
      conditions, any or all of which may be waived by the Company:

    

    (i) No
      order
      of any governmental body shall be in effect that restrains or prohibits the
      issuance of the BATL Warrant or the BATL Shares.

    

    (ii) BATL
      shall have delivered to the Company the Purchase Price.

    

    (iii) The
      representations and warranties of BATL contained in this Agreement shall be
      true
      and correct on and as of the Closing Date with the same effect as though such
      representations and warranties had been made on and as of the Closing Date;
      and

    

      (iv) BATL
      shall have delivered to the Company, at the Closing, a certificate dated the
      Closing Date, duly executed by its chief executive officer or member or manager
      performing similar functions, or to the effect that all of the foregoing
      conditions have been met.

    

    

    ARTICLE
      TWO

    

    REPRESENTATIONS
      AND WARRANTIES

    

    2.1 Representations
      and Warranties of the Company.

    

    The
      Company hereby represents and warrants to BATL as follows:

    

    2.1.1 Authorization
      of Agreement and Securities.
      The
      execution, delivery and performance by the Company of this Agreement, the
      Registration Rights Agreement (as defined in Section 2.1.11) and the BATL
      Warrant (the “Transaction Documents”) have been duly authorized by all necessary
      corporate action of the Company, and this Agreement constitutes the valid and
      binding obligations of the Company enforceable against it in accordance with
      its
      terms, except as may be limited by bankruptcy, insolvency, reorganization,
      moratorium or other similar laws affecting the enforcement of creditors’ rights
      generally and subject to general principles to equity (regardless of whether
      such enforceability is considered in a proceeding at law or in equity). The
      Company has available a sufficient number of authorized and unissued shares
      of
      Common Stock as may be necessary to issue the BATL Shares hereunder and to
      effect the exercise of the BATL Warrants. The Company understands and
      acknowledges the potentially dilutive effect to the Common Stock of the issuance
      of shares of Common Stock upon the exercise of the BATL Warrants. The Company
      further acknowledges that its obligation to issue shares of Common Stock upon
      exercise of the Warrants is absolute and unconditional regardless of the
      dilutive effect that such issuance may have on the ownership interests of other
      stockholders of the Company and notwithstanding the commencement of any case
      under 11 U.S.C. § 101 et seq. (the “Bankruptcy Code”). 

    

    
      
         

      

      
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    2.1.2 Organization,
      Standing and Qualification of the Company and the Company
      Subsidiaries.
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Delaware. Schedule 2.1.2 lists all Subsidiaries
      (as hereinafter defined) of the Company and their respective jurisdictions
      of
      formation (collectively the “Company Subsidiaries” and each a “Company
      Subsidiary”). Each Company Subsidiary is duly organized, validly existing and in
      good standing under the laws of the jurisdiction listed next to such Company
      Subsidiary on Schedule 2.1.2. The Company has the full corporate power and
      authority to execute, deliver and perform this Agreement and all other
      Transaction Documents. In addition, each of the Company and each Company
      Subsidiary has full corporate power and authority to carry on its business
      as
      now conducted and to own, lease, and operate its properties as now done. Each
      of
      the Company and each Company Subsidiary is qualified to do business and is
      in
      good standing in each jurisdiction in which the nature of the business conducted
      by it or the properties owned or leased by it requires qualification, except
      where the failure to be so qualified would not have a material adverse effect
      on
      the business, assets, properties, operations, results of operations, condition
      (financial or otherwise) or prospects of the Company (“Material Adverse
      Effect”). There are no outstanding securities or rights convertible into or
      exchangeable for shares of any capital stock of any Company Subsidiary and
      there
      are no contracts by which any Company Subsidiary is bound to issue additional
      shares of capital stock. All of the shares of capital stock of the Subsidiary
      are duly and validly authorized, fully paid and non-assessable and are owned
      by
      the Company free and clear of any lien with respect thereto. 

    

    For
      purposes herein, “Subsidiary” shall mean any entity more than 50% of the shares
      of the voting stock, voting interests, membership interests or partnership
      interests of which are owned or controlled, or the ability to select or elect
      more than 50% of the directors or similar managers is held, directly or
      indirectly, by the Company or one or more of its Subsidiaries or by the Company
      and one or more of its Subsidiaries.

    

    2.1.3 Consents
      of Third Parties.
      The
      execution, delivery and performance by the Company of the Transaction Documents
      will not (i) violate or conflict with the certificate of incorporation or
      by-laws of the Company or any of the Company Subsidiaries, (ii) conflict with,
      or result in the breach or termination, amendment, cancellation or acceleration
      or right to increase the obligations or otherwise modify the terms of, or
      constitute a default under, any lease, agreement, commitment or other
      instrument, or any order, judgment or decree, to which the Company or any of
      the
      Company Subsidiaries is a party or by which the Company, any Company Subsidiary
      or any of their properties is bound, (iii) constitute a violation of any law
      applicable to the Company or any Company Subsidiary or (iv) result in the
      creation of any lien upon any other properties or assets of the Company or
      any
      Company Subsidiary. No consent, approval or authorization of, or designation,
      declaration or filing with, any governmental authority or third party
      (including, without limitation, any shareholder of the Company), is required
      on
      the part of the Company in connection with the execution, delivery and
      performance of this Agreement. Without limiting the foregoing, no vote or
      consent of the Company’s shareholders is required in order for the Company to
      issue the BATL Shares and/or the BATL Warrant and perform its obligations
      hereunder and to continue to list its shares for trading on the OTC Bulletin
      Board.

    

    
      
         

      

      
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    2.1.4 Litigation.
      There
      are no judicial or administrative actions, proceedings or investigations pending
      or, to the knowledge of the Company, threatened that question the validity
      of
      this Agreement or any action taken or to be taken by the Company in connection
      with this Agreement. To the knowledge of the Company, except as set forth in
      Schedule 2.1.4, there is no litigation, arbitration, proceeding or governmental
      investigation pending or, to the knowledge of the Company, threatened, or any
      order, injunction or decree outstanding, against or relating or the Company
      or
      any Company Subsidiary which, if adversely determined, would have a Material
      Adverse Effect. To the knowledge of the Company, there is no existing state
      of
      facts that would give rise to any such litigation that, if adversely determined,
      could reasonably be expected to have a Material Adverse Effect upon the Company
      or the Subsidiary or any Company Subsidiary.

    

    2.1.5 Compliance
      with Laws.
      Neither
      the Company nor any Company Subsidiary is in violation of any applicable law,
      regulation, ordinance, or any other applicable requirement of any governmental
      body or court, which violations in the aggregate could reasonably be expected
      to
      have a Material Adverse Effect upon the Company or any Company Subsidiary and
      no
      notice has been received by the Company or any Company Subsidiary alleging
      any
      such violation that has not been cured or otherwise resolved and the cure or
      resolution of which would not result in any material monetary obligation or
      material limitation on the lawful conduct of the business of the Company or
      any
      Company Subsidiary as conducted on the date hereof. Neither the Company nor
      any
      Company Subsidiary has received any written notice of violation or alleged
      material violation of any such law or order by any governmental body in any
      material respect that has not been resolved, or received written notice of
      investigation by any governmental body which could reasonably have a Material
      Adverse Effect. The Company possesses all permits, approvals, authorizations,
      licenses, certificates and consents from all public and governmental authorities
      which are necessary to conduct its business as currently conducted, the lack
      of
      which would materially and adversely affect the business or financial condition
      of the Company. The Company is not in default in any respect under any such
      franchises, permits, licenses or similar authorizations.

    

    2.1.6 Compliance
      with Securities Laws; Disclosure.
      The
      Company’s Common Stock is registered under Section 12 of the Securities Exchange
      Act of 1934, as amended (the “Exchange Act”). Since January 8, 2003, the Company
      has made all of the filings (the “SEC Filings”) required to be made under the
      Securities Act of 1933, as amended (the “Securities Act”), the Exchange Act, and
      all rules and regulations in effect thereunder, and no such filing contains
      any
      untrue statement of a material fact or omits to state a material fact necessary
      to make the statements made, not misleading. As of their respective dates,
      the
      SEC Filings, including the financial statements contained therein, complied
      in
      all material respects with all of the statutes and published rules and
      regulations enforced or promulgated by the regulatory authority with which
      the
      SEC Filings were filed, and, except to the extent the information in any SEC
      Filing has been revised or superseded by a later filed SEC Filing, did not
      and
      do not as of the date hereof contain any untrue statement of a material fact
      or
      omit to state any material fact required to be stated therein or necessary
      in
      order to make the statements therein, in the light of the circumstances under
      which they were made, not misleading. The financial statements of the Company
      included in the SEC Filings comply in all material respects with applicable
      accounting requirements and the rules and regulations of the SEC with respect
      thereto as in effect at the time of filing. Such financial statements have
      been
      prepared in accordance with GAAP, except as may be otherwise specified in such
      financial statements or the notes thereto, and fairly present in all material
      respects the financial position of the Company and its consolidated subsidiaries
      as of and for the dates thereof and the results of operations and cash flows
      for
      the periods then ended, subject, in the case of unaudited statements, to normal,
      year-end audit adjustments. Except as disclosed in the SEC Filings, or as
      otherwise disclosed in writing to BATL, since September 30, 2005 there has
      been
      no development that has any reasonable likelihood of having a Material Adverse
      Effect or resulting in a Material Adverse Effect upon the Company or the
      Subsidiary. 

    

    
      
         

      

      
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    2.1.7 Disclosure.
      The SEC
      filings and the representations and warranties of the Company contained in
      this
      Agreement, when taken as a whole, contain no untrue statement of a material
      fact
      concerning the Company or omit to state any material fact required to be stated
      therein or necessary in order to make the statements contained therein, in
      light
      of the circumstances under which they were made, not misleading, as of their
      respective dates. There is no fact known to the Company that has had, or could
      reasonably be expected to have, a Material Adverse Effect and that has not
      been
      disclosed herein or in such other documents and statements furnished to BATL
      for
      use in connection with the transaction contemplated hereby.

    

    2.1.8. Capitalization.
      Schedule 2.1.8 sets forth, in each case as of the date hereof, (i) the
      authorized capitalization of the Company, the number of shares of each class
      issued and outstanding and the number of shares reserved for issuance in
      connection with the Company’s stock option plans, and (ii) all options,
      warrants, convertible securities, rights to subscribe to, calls, contracts,
      undertakings, arrangements and commitments to issue which may result in the
      issuance of stock of the Company. All of the issued and outstanding shares
      of
      the Company’s capital stock have been duly and validly authorized and issued and
      are fully paid and non-assessable and are not subject to any preemptive rights.
      No securities of the Company are entitled to preemptive or similar rights,
      and
      no person has any right of first refusal, preemptive right, right of
      participation, or any similar right to participate in the transaction
      contemplated by this Agreement or any other Transaction Document.

    

    2.1.9 No
      General Solicitation.
      None of
      the Company or any of its “affiliates” (as defined in Rule 501(b) of Regulation
      D under the Securities Act (“Regulation D”)), has, directly or through an agent,
      engaged in any form of general solicitation or general advertising in connection
      with the offering of the BATL Shares and BATL Warrant (as those terms are used
      in Regulation D) under the Securities Act or in any manner involving a public
      offering within the meaning of Section 4(2) of the Securities Act; and the
      Company has not entered into any contractual arrangement with respect to the
      distribution of the BATL Shares or BATL Warrant except for this Agreement,
      and
      the Company will not enter into any such arrangement.

    

    2.1.10. No
      Default.
      Except
      as disclosed in the SEC Filings, the Company is not in default in the payment
      or
      performance of any of its contracts, agreements or other obligations, except
      where such default would not have a Material Adverse Effect.

    

    2.1.11. Registration
      of Shares.
      Except
      as contemplated under the Registration Rights Agreement to be entered into
      between BATL and the Company on the date hereof (the “Registration
      Rights Agreement”)
      and
      except as set forth in Schedule 2.1.11, the Company has not entered into any
      agreement to register its debt or equity securities under the Securities
      Act.

    

    2.1.12
      Private
      Placement.
      Assuming the accuracy of the representations and warranties of BATL contained
      in
      Section 2.3 and its compliance with the agreements set forth therein, no
      registration under the Securities Act is required for the offer and sale of
      the
      BATL Shares and BATL Warrant by the Company to BATL or as contemplated hereby.
      

    

    2.1.13
      Taxes. 
      To the
      knowledge of the Company, there have been properly completed and filed all
      material tax returns required to be filed by the Company or any Company
      Subsidiary on or prior to the date hereof. All such tax returns are true,
      correct and complete in all material respects. All taxes of the Company or
      any
      Company Subsidiary due and payable have been timely paid, except where the
      failure to pay such taxes or the delay thereof would not reasonably be expected
      to have a Material Adverse Effect. The most recent audited financial statements
      of the Company contained in the SEC Filings reflect an adequate accrual in
      accordance with GAAP for all material taxes payable by the Company and any
      Company Subsidiaries for all taxable periods and portions thereof through the
      date of such financial statements. 

    

    2.1.14
      Investment
      Company.
      The
      Company is not, and is not an affiliate of, an “investment company” within the
      meaning of the Investment Company Act of 1940, as amended.

    

    2.1.15  Listing
      of Shares.
      The
      Common Stock is listed and traded on the OTC Bulletin Board (“OTC”), and the
      Company is not aware of any pending or contemplated action or proceeding of
      any
      kind to suspend the trading of the Common Stock. The Company is not in violation
      of any listing requirements of the OTC.

    

    2.1.16.  Internal
      Controls.
      Except
      as otherwise disclosed in the SEC Filings, the Company maintains a system of
      internal accounting controls in accordance with applicable federal securities
      laws sufficient to provide reasonable assurances that (i) transactions are
      executed in accordance with management’s general or specific authorization; (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles and
      to
      maintain accountability for assets; (iii) access to assets is permitted only
      in
      accordance with management’s general or specific authorization; and (iv) the
      recorded accountability for assets is compared with existing assets at
      reasonable intervals and appropriate action is taken with respect to any
      differences.

    

    
      
         

      

      
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    2.1.17  Insurance.
      The
      Company maintains property and casualty, general liability, workers'
      compensation, environmental hazard, personal injury and other similar types
      of
      insurance with financially sound and reputable insurers that is adequate and
      consistent with industry standards and the Company's historical claims
      experience. The Company has not received notice from, and has no knowledge
      of
      any threat by, any insurer (that has issued any insurance policy to the Company)
      that such insurer intends to deny coverage under or cancel, discontinue or
      not
      renew any insurance policy presently in force.

    

    2.1.18 
      Environmental Matters.
      1. The
      operations of the Company are, to its knowledge, in material compliance with
      all
      applicable Environmental Laws and all permits issued pursuant to Environmental
      Laws or otherwise;

    

    2.
      to its
      knowledge, the Company has obtained or applied for all material permits required
      under all applicable Environmental Laws necessary to operate its
      business;

    

    3.
      the
      Company is not the subject of any outstanding written order of or agreement
      with
      any governmental authority or person respecting (i) Environmental Laws, (ii)
      Remedial Action or (iii) any Release or threatened Release of Hazardous
      Materials;

    

    4.
      the
      Company has not received, any written communication alleging that it may be
      in
      violation of any Environmental Law or any permit issued pursuant to any
      Environmental Law, or may have any liability under any Environmental
      Law;

    

    5.
      the
      Company does not have any current contingent liability in connection with any
      Release of any Hazardous Materials into the indoor or outdoor environment
      (whether on-site or off-site); and

    

    6.
      to the
      Company's knowledge, there are no investigations of the business, operations,
      or
      currently or previously owned, operated or leased property of the Company
      pending or threatened which could lead to the imposition of any liability
      pursuant to any Environmental Law that would have a Material Adverse
      Effect;

    

    For
      purposes of this Section 2.1.18:

    

    "Environmental
      Law" means any foreign, federal, state or local statute, regulation, ordinance,
      or rule of common law as now or hereafter in effect in any way relating to
      the
      protection of human health and safety or the environment including, without
      limitation, the Comprehensive Environmental Response, Compensation and Liability
      Act (42 U.S.C. ' 9601 et seq.), the Hazardous Materials Transportation Act
      (49
      U.S.C. App. ' 1801 et seq.), the Resource Conservation and Recovery Act (42
      U.S.C. ' 6901 et seq.), the Clean Water Act (33 U.S.C. ' 1251 et seq.), the
      Clean Air Act (42 U.S.C. ' 7401 et seq.), the Toxic Substances Control Act
      (15
      U.S.C. ' 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide
      Act
      (7 U.S.C. ' 136 et seq.), and the Occupational Safety and Health Act (29 U.S.C.
      ' 651 et seq.), and the regulations promulgated pursuant thereto.

    

    
      
         

      

      
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    "Hazardous
      Material" means any substance, material or waste which is regulated by the
      United States, Canada or any of its provinces, or any state or local
      governmental authority including, without limitation, petroleum and its
      by-products, asbestos, and any material or substance which is defined as a
      "hazardous waste," "hazardous substance," "hazardous material," "restricted
      hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
      "toxic waste" or toxic substance" under any provision of any Environmental
      Law;

    

    "Release"
      means any release, spill, filtration, emission, leaking, pumping, injection,
      deposit, disposal, discharge, dispersal, or leaching into the indoor or outdoor
      environment, or into or out of any property;

    

    "Remedial
      Action" means all actions to (x) clean up, remove, treat or in any other way
      address any Hazardous Material; (y) prevent the Release of any Hazardous
      Material so it does not endanger or threaten to endanger public health or
      welfare or the indoor or outdoor environment; or (z) perform pre-remedial
      studies and investigations or post-remedial monitoring and care.

    

    2.1.19  Proprietary
      Rights.
      The
      Company owns or possesses adequate and enforceable rights to use all patents,
      patent applications, trademarks, trademark applications, trade names, service
      marks, copyrights, copyright applications, licenses, know-how (including trade
      secrets and other unpatented and/or unpatentable proprietary or confidential
      information, systems or procedures) and other similar rights and proprietary
      knowledge (collectively, "Intangibles") necessary for the conduct of its
      business as now being conducted, except those the absence of which would not
      have a Material Adverse Effect. To the best of the Company's knowledge, the
      Company is not infringing upon or in conflict with any right of any other person
      with respect to any Intangibles. No claims have been asserted by any person
      to
      the ownership or use of any Intangibles that would have a Material Adverse
      Effect on the Company and the Company has no knowledge of any basis for such
      claim.

    

    2.1.20  Customers
      and Suppliers.
      The
      Company has not received any notice or has any reason to believe that any
      Company customer has ceased, or will cease, to use the proceeds, equipment,
      goods or services of the Company, or has substantially reduced or will
      substantially reduce, the use of such products, equipment, goods or services
      at
      any time which would have a Material Adverse Effect. The Company has no reason
      to believe that any of its suppliers will not sell raw materials, supplies,
      merchandise and other goods to the Company on the same terms and conditions
      as
      those used in its current sales to the Company, subject only to general and
      customary price increases.

    

    2.2 Representations
      and Warranties of BATL.

    

    BATL
      hereby represents and warrants to the Company as follows:

    

    2.2.1 Authorization
      of Agreement.
      The
      execution, delivery and performance by BATL of this Agreement has been duly
      authorized by all necessary action of BATL, and this Agreement constitutes
      the
      valid and binding obligation of BATL enforceable against it in accordance with
      its terms, except as may be limited by bankruptcy, insolvency, reorganization,
      moratorium or other similar laws affecting the enforcement of creditors’ rights
      generally and subject to general principles to equity (regardless of whether
      such enforceability is considered in a proceeding at law or in equity).

    

    2.2.2 Organization
      of BATL.
      BATL is
      a limited liability company duly organized, validly existing and in good
      standing under the laws of the State of Delaware, and has the full power and
      authority to execute, deliver and perform this Agreement. 

    

    2.2.3 Consents
      of Third Parties.
      The
      execution, delivery and performance by BATL of its obligations under this
      Agreement will not (i) violate or conflict with the articles of organization
      or
      operating agreement of BATL, (ii) conflict with, or result in the breach or
      termination of, or constitute a default under, any lease, agreement, commitment
      or other instrument, or any order judgment or decree, to which BATL is a party
      or by which BATL or any of its properties is bound, or (iii) constitute a
      violation of any law applicable to BATL. No consent, approval or authorization
      of, or designation, declaration or filing with, any governmental authority
      or
      third part is required on the party of BATL in connection with the execution,
      delivery and performance of this Agreement.

    

    2.2.4 Litigation.
      There
      are no judicial or administrative actions, litigations, arbitrations,
      proceedings or investigations pending or threatened that question the validity
      of this Agreement or any action taken or to be taken by BATL in connection
      with
      this Agreement. 

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    2.3 Investment
      Representations of BATL.

    

    BATL
      hereby represents and warrants to the Company as follows:

    

    (a) The
      BATL
      is an “accredited investor” as defined by Rule 501 under the Securities Act, and
      BATL is capable of evaluating the merits and risks of BATL’s investment in the
      Company and has the capacity to protect BATL’s own interests.

    

    (b) BATL
      understands that except as provided for in the Registration Rights Agreement,
      the BATL Shares and the shares underlying the BATL Warrant, have not been,
      and
      will not be, registered under the Securities Act or the securities laws of
      any
      state by reason of a specific exemption from the registration provisions of
      the
      Securities Act and the applicable state securities laws, the availability of
      which depends upon, among other things, the bona fide nature of the investment
      intent and the accuracy of BATL’s representations as expressed
      herein.

    

    (c) BATL
      acknowledges and understands that the BATL Shares and BATL Warrant are being
      purchased for investment purposes and not with a view to distribution or resale,
      nor with the intention of selling, transferring or otherwise disposing of all
      or
      any part of the BATL Securities for any particular price, or at any particular
      time, or upon the happening of any particular event or circumstances, except
      selling, transferring, or disposing the BATL Securities made in full compliance
      with all applicable provisions of the Securities Act, the rules and regulations
      promulgated by the Securities and Exchange Commission (“SEC”) thereunder, and
      applicable state securities laws.

    

    (d) BATL
      acknowledges that the BATL Securities must be held indefinitely unless
      subsequently registered under the Securities Act or unless an exemption from
      such registration is available. BATL is aware of the provisions of Rule 144
      promulgated under the Securities Act which permit limited resale of securities
      purchased in a private placement subject to the satisfaction of certain
      conditions, including, among other things, the existence of a public market
      for
      the securities, the availability of certain current public information about
      the
      Company, the resale occurring not less than one year after a party has purchased
      and paid for the security to be sold, the sale being effected through a
“broker’s transaction” or in transactions directly with a “market maker” and the
      number of securities being sold during any three-month period not exceeding
      specified limitations. 

    

    (e) In
      determining whether to make this investment, BATL has relied solely on the
      SEC
      Filings and the representations and warranties made by the Company pursuant
      to
      this Agreement. BATL understands that no person has been authorized to give
      any
      information or to make any representations which were not furnished pursuant
      to
      this paragraph and BATL has not relied on any other representations or
      information.

    

    (f) To
      the
      extent BATL deems necessary, BATL has reviewed with BATL’s own tax advisors the
      federal, state and local tax consequences of this investment and the
      transactions contemplated by this Agreement. BATL relies solely on such advisors
      and not on any statements or representations of the Company or any of its
      agents. BATL understands that BATL (and not the Company) shall be responsible
      for BATL’s own tax liability that may arise as a result of this investment or
      the transactions contemplated by this Agreement.

    

    (g) BATL
      acknowledges that the BATL Securities are speculative and involve a high degree
      of risk and that BATL can bear the economic risk of the purchase of the BATL
      Securities, including a total loss of its investment. 

    

    (h) BATL
      recognizes that no federal, state or foreign agency has recommended or endorsed
      the purchase of the BATL Securities.

    

    (i) BATL
      is
      aware that the BATL Shares and BATL Warrant are and will be, when issued,
“restricted securities” as that term is defined in Rule 144 of the general rules
      and regulations under the Securities Act.

    

    (j) (A)
      BATL
      understands that any and all certificates representing the BATL Shares and
      BATL
      Warrant and any and all securities issued in replacement thereof or in exchange
      therefor shall bear the following legend, or one substantially similar thereto,
      which BATL has read and understands:

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    “The
      securities represented by this certificate have not been registered under the
      Securities Act of 1933. The securities have been acquired for investment and
      may
      not be sold, transferred or assigned in the absence of an effective registration
      statement for these securities under the Securities Act of 1933 or an opinion
      of
      the Company’s counsel that registration is not required under said
      Act.”

    

    (B) The
      legend endorsed on the certificate pursuant to Section 2.3(j)(A) hereof shall
      be
      removed and the Company shall issue a certificate without such portion of the
      legend to the holder thereof at such time as the securities evidenced thereby
      cease to be restricted securities upon the earliest to occur of (i) a
      registration statement with respect to the sale of such securities shall have
      become effective under the Securities Act and such securities shall have been
      disposed of in accordance with such registration statement, (ii) the securities
      shall have been sold to the public pursuant to Rule 144 (or any successor
      provision) under the Securities Act, and (iii) such securities may be sold
      by
      the holder without restriction or registration under Rule 144(k) under the
      Securities Act (or any successor provision).

    

    (k) Because
      of the restrictions imposed on resale, BATL understands that until such time
      as
      the BATL Securities have been registered under the Securities Act or BATL
      demonstrates to the reasonable satisfaction of the Company that such
      registration shall no longer be required, the Company shall have the right
      to
      note stop-transfer instructions in its stock transfer records, and BATL has
      been
      informed of the Company’s intention to do so. 

    

    (l) BATL
      acknowledges that it has such knowledge and experience in financial and business
      matters that it is capable of evaluating the merits and risks of an investment
      in the BATL Securities and of making an informed investment
      decision.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    

    ARTICLE
      THREE

    

    COVENANTS

    

    3.1 Covenants
      of the Company.
      On and
      after the Closing Date, the Company shall comply with each of the following
      provisions, any of which may be waived in whole or in part by the written
      consent of BATL only to the extent expressly stated thereon.

    

    3.1.1
       Election
      of Directors.
      From
      and after the Closing Date, for so long as BATL shall beneficially own (as
      determined under Section 13(d) of the Exchange Act and the rules and regulations
      promulgated thereunder) in excess of 10% of the outstanding shares of the common
      stock of the Company, BATL shall be entitled to nominate one director to the
      Board of Directors of the Company. The Company shall take all steps necessary
      to
      cause such nominee to be elected to the Board effective as of the Closing Date
      and re-elected, as applicable, to the Board at each election of the Board of
      Directors. In the event of the resignation or inability to serve of any such
      nominee, the vacancy thus created shall be filled by a nominee by BATL. If
      BATL
      shall at any time decline to nominate a director, a representative of BATL
      shall
      be entitled to attend all meetings of the Board and to be heard thereat, but
      not
      to vote (provided such representative shall agree in a writing reasonably
      satisfactory in form and substance to the Company to protect proprietary or
      confidential information of the Company). The failure for any reason by the
      Company to provide BATL with the right to place a director on the Board shall
      constitute a material breach of this Agreement. 

    

    3.1.2 Chief
      Executive Officer.
      Dwaine
      Reese shall agree, in form reasonably satisfactory to BATL, to remain as Chief
      Executive Officer of the Company for a period of two years from the Closing
      Date
      on terms and conditions comparable to those under which he presently serves
      as
      CEO. 

    

    3.1.3 Application
      of Proceeds.
      The
      proceeds of the Purchase Price shall be used by the Company as follows: (i)
      $1,000,000 to complete the purchase of RubyCat Technologies, provided such
      transaction is consummated; (ii) no more than $340,000 to repay certain
      outstanding debt of the Company and the Subsidiary; and (iii) the balance for
      working capital purposes. No commission, whether in cash or shares of stock
      of
      the Company, shall be paid or issued to any party in connection with the
      transaction contemplated by this Agreement and the Purchase Price paid by BATL.
      BATL is hereby granted the irrevocable, unconditional right (the “Put Option”),
      exercisable on one occasion only for a period of ninety (90) days following
      the
      earlier to occur of (i) the termination of any definitive agreement or letter
      of
      intent in respect of the RubyCat Transaction (as defined below) and (ii) if
      the
      Ruby Cat Transaction shall not yet have been consummated, ninety (90) days
      following the Closing Date (the earlier to occur of such events described in
      (i)
      and (ii), a “Triggering Event”), to sell to the Company up to 816,667 shares of
      Common Stock at a per share purchase price of $1.2245. BATL shall exercise
      such
      right by delivering a notice (the “Put Notice”) to the Company in accordance
      with Section 5.5 hereof specifying the number of shares BATL wished to sell
      to
      the Company and wire instructions to be used by the Company to transfer the
      requisite funds for the purchase of such shares. The Company shall have ten
      (10)
      business days from the date it receives such notice to pay for the number of
      shares specified in the notice. Contemporaneously with the receipt of such
      funds, BATL shall deliver certificates for the shares specified in the notice
      to
      the Company for cancellation. In the event that at the time of such sale BATL
      does not hold a certificate for the exact number of shares specified in the
      notice, BATL shall deliver to the Company a certificate or certificate(s) for
      more than the number of shares specified in the notice and the Company shall
      promptly issue to BATL a certificate representing the shares delivered by BATL
      in excess of the number of shares specified in the exercise notice. For the
      avoidance of doubt, in the event BATL shall fail to provide the Company with
      the
      Put Notice within ninety (90) days following written notice from the Company
      notifying BATL that a Triggering Event has occurred, BATL shall have no further
      rights hereunder to exercise the Put Option. 

     

    “RubyCat
      Transaction” means the proposed acquisition by the Company of Ruby Cat
      Technology, LLC, as disclosed in that certain Report on 8-K filed by the Company
      with the SEC on October 24, 2005.

     

    3.1.4 Additional
      Financings.
      For
      such period of time commencing with the Closing Date and ending at the earlier
      of (i) twenty-four (24) months from the Closing Date, or (ii) the date BATL
      ceases to beneficially own (as determined under Section 13(d) of the Exchange
      Act and the rules and regulations promulgated thereunder) in excess of 10%
      of
      the outstanding shares of the capital stock of the Company, the Company will
      not, and will cause the Subsidiary not to, effect any equity or debt issuance
      or
      sale without the prior written consent of BATL other than (i) as a result of
      the
      exercise or conversion of any currently outstanding security pursuant to its
      current terms, (ii) other issuances which are contemplated as set forth in
      Schedule 2.1.8 under the heading “Other existing rights which may result in the
      issuance of stock of the Company”, 
      (iii) up
      to 250,000 shares for services rendered, and (iv) up to an additional 700,000
      shares underlying options granted pursuant to a stock option plan providing
      for
      an exercise price that is no less than the fair market value of a share of
      Common Stock at the time of grant.

    

    3.1.5. Filings.
      The
      Company undertakes and agrees that it will make all required filings in
      connection with the sale of the BATL Shares and BATL Warrant to BATL as required
      by United States laws and regulations, or by any domestic securities exchange
      or
      trading market, and if applicable, the filing of a notice on Form D (at such
      time and in such manner as required by the Rules and Regulations of the
      Commission), and to provide copies thereof to BATL promptly after such filing
      or
      filings.

    

    3.1.6. Reporting
      Status.
      So long
      as BATL beneficially owns any of the BATL Securities, the Company shall timely
      file all reports required to be filed with the SEC pursuant to Section 13 or
      15(d) of the Exchange Act and shall not terminate its status as an issuer
      required to file reports under the Exchange Act even if the Exchange Act or
      the
      rules and regulations thereunder would permit such termination.

    

    3.1.7. Reservation
      of Common Stock.
      The
      Company will at all times have authorized and reserved for the purpose of
      issuance a sufficient number of shares of Common Stock to provide for the
      conversion of the exercise of the BATL Warrant. 

    

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    ARTICLE
      FOUR

    

    INDEMNIFICATION

    

    A. Indemnification
      of BATL by the Company.

    

    The
      Company hereby agrees to indemnify and hold harmless BATL, its affiliates and
      their respective officers, directors, partners, shareholders, employees,
      managers and members (collectively, the "Buyer Indemnitees"), from and against
      any and all losses, claims, damages, judgments, penalties, liabilities and
      deficiencies (collectively, "Losses"), and agrees to reimburse the Buyer
      Indemnitees for all out-of-pocket expenses (including the reasonable fees and
      expenses of legal counsel), in each case promptly as incurred by the Buyer
      Indemnitees and to the extent arising out of or in connection with:

    

    1.
      any
      misrepresentation, omission of fact or breach of any of the Company's
      representations or warranties contained in this Agreement, the annexes,
      schedules or exhibits hereto or any instrument, agreement or certificate entered
      into or delivered by the Company pursuant to this Agreement; or

    

    2.
      any
      failure by the Company to perform any of its covenants, agreements, undertakings
      or obligations set forth in this Agreement, the annexes, schedules or exhibits
      hereto or any instru¬ment, agreement or certificate entered into or delivered by
      the Company pursuant to this Agreement.

    

    B. Indemnification
      of the Company by BATL.

    

    BATL
      hereby agrees to indemnify and hold harmless the Company, its affiliates and
      their respective officers, directors, partners and members (collectively, the
      "Company Indemnitees"), from and against any and all Losses, and agrees to
      reimburse the Company Indemnitees for all out-of-pocket expenses (including
      the
      reasonable fees and expenses of legal counsel), to the extent arising out of
      or
      in connection with any breach of any of BATL’s representations or warranties
      contained in this Agreement, the annexes, schedules or exhibits hereto or any
      instrument, agreement or certificate entered into or delivered by BATL pursuant
      to this Agreement.

    

    C. Third
      Party Claims.
      Promptly after receipt by either party hereto seeking indemnification pursuant
      to this Article 4 (an "Indemnified Party") of written notice of any
      investigation, claim, proceeding or other action in respect of which
      indemnification is being sought (each, a "Claim"), the Indemnified Party
      promptly shall notify the party against whom indemnification pursuant to this
      Article 4 is being sought (the "Indemnifying Party") of the commencement
      thereof; but the omission to so notify the Indemnifying Party shall not relieve
      it from any liability that it otherwise may have to the Indemnified Party,
      except to the extent that the Indemnifying Party is materially prejudiced and
      forfeits substantive rights and defenses by reason of such failure. In
      connection with any Claim as to which both the Indemnifying Party and the
      Indemnified Party are parties, the Indemnifying Party shall be entitled to
      assume the defense thereof. Notwithstanding the assumption of the defense of
      any
      Claim by the Indemnifying Party, the Indemnified Party shall have the right
      to
      employ separate legal counsel and to participate in the defense of such Claim,
      and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
      and expenses of such separate legal counsel to the Indemnified Party if (and
      only if): (x) the Indemnifying Party shall have agreed to pay such fees,
      out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
      Party reasonably shall have concluded that representation of the Indemnified
      Party by the Indemnifying Party by the same legal counsel would not be
      appropriate due to actual or, as reasonably determined by legal counsel to
      the
      Indemnified Party, potentially differing interests between such parties in
      the
      conduct of the defense of such Claim, or if there may be legal defenses
      available to the Indemnified Party that are in addition to or disparate from
      those available to the Indemnifying Party, or (z) the Indemnifying Party shall
      have failed to employ legal counsel reasonably satisfactory to the Indemnified
      Party within a reasonable period of time after notice of the commencement of
      such Claim. If the Indemnified Party employs separate legal counsel in
      circumstances other than as described in clauses (x), (y) or (z) above, the
      fees, costs and expenses of such legal counsel shall be borne exclusively by
      the
      Indemnified Party. Except as provided above, the Indemnifying Party shall not,
      in connection with any Claim in the same jurisdiction, be liable for the fees
      and expenses of more than one firm of legal counsel for the Indemnified Party
      (together with appropriate local counsel). The Indemnifying Party shall not,
      without the prior written consent of the Indemnified Party (which consent shall
      not unreasonably be withheld), settle or compromise any Claim or consent to
      the
      entry of any judgment that does not include an unconditional release of the
      Indemnified Party from all liabilities with respect to such Claim or
      judgment.

    

    D. Other
      Claims.

    

    In
      the
      event one party hereunder should have a claim for indemnification that does
      not
      involve a claim or demand being asserted by a third party, the Indemnified
      Party
      promptly shall deliver notice of such claim to the Indemnifying Party. If the
      Indemnified Party disputes the claim, such dispute shall be resolved by mutual
      agreement of the Indemnified Party and the Indemnifying Party or by binding
      arbitration conducted in accordance with the procedures and rules of the
      American Arbitration Association. Judgment upon any award rendered by any
      arbitrators may be entered in any court having competent jurisdiction
      thereof.

    

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    ARTICLE
      FIVE

    

    MISCELLANEOUS

    

    5.1 Modification. 
      This
      Agreement, the Registration Rights Agreement and the BATL Warrant Certificate
      set forth the entire understanding of the parties hereto with respect to the
      subject matter hereof, merges and supersedes all existing agreements between
      them concerning such subject matter, and may only be altered or amended by
      a
      written instrument duly executed by the party against whom such alteration
      or
      amendment is sought to be enforced.

     

    5.2 Counterparts.
      This
      Agreement may be executed through the use of separate signature pages or in
      any
      number of counterparts, and each of such counterparts shall, for all purposes,
      constitute one agreement binding on all the parties, notwithstanding that all
      parties are not signatories to the same counterpart.

    

    5.3 Binding
      Effect and No Assignment.
      Except
      as otherwise provided herein, this Agreement shall be binding upon and inure
      to
      the benefit of the parties and their heirs, executors, administrators,
      successors, legal representatives and permitted assigns. Neither party shall
      assign this Agreement or its rights and obligations under this Agreement without
      the prior written consent of the other party, which consent shall not be
      unreasonably withheld, delayed or conditioned. 

    

    5.4 Governing
      Law and Consent To Jurisdiction.
      This
      Agreement shall be governed and construed under the laws of the State of New
      York and, without limiting the applicability or effectiveness of the arbitration
      clause herein, the parties hereto consent to the jurisdiction of the State
      and
      Federal courts having jurisdiction over matters arising in New York County,
      New
      York.  

    

    5.5 Notice.
      All
      notices or other communications given or made pursuant hereto shall be in
      writing and shall be deemed to have been duly given or made if and when
      delivered personally or by overnight courier to the parties at the following
      addresses, or sent by electronic transmission, with confirmation of receipt,
      to
      the telecopy numbers specified below: (or at such other address or telecopy
      number for the party as shall be specified by like notice):

    

    If
      to the
      Company:

     

    EnerTeck
      Corporation

    10701
      Corporate Drive

    Suite
      150

    Stafford,
      Texas 77477

    Attention:
      Dwaine Reese

    Telecopier
      No.: (281) 240-1828

    

    With
      a
      copy to:

    

    Danzig
      Kaye Cooper Fiore & Kay, LLP

    30A
      Vreeland Road, Suite 230

    Florham
      Park, New Jersey 07932

    Attn:
      David M. Kaye, Esq.

    Telecopier
      No.: (973) 443-0609

    If
      to
      BATL: 

     

    BATL
      BioEnergy LLC

    7
      Lakeside Drive

    Rye,
      New
      York 10580

    Attn:
      Thomas Donino

    Telecopier
      No.: (914) 921-3495

    With
      a
      copy to:

    

    Katten
      Muchin Rosenman LLP

    575
      Madison Avenue

    New
      York,
      New York 10022

    Attention:
      Elliot Press, Esq.

    Telecopier
      No: (212) 940-6621

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    5.6 Severability.
      If any
      provision of this Agreement is held to be illegal, invalid or unenforceable
      under present or future laws effective during the term hereof, such provision
      shall be fully severable and this Agreement shall be construed and enforced
      as
      if such illegal, invalid or unenforceable provision never comprised a part
      hereof; and the remaining provisions hereof shall remain in full force and
      effect and shall not be affected by the illegal, invalid or unenforceable
      provision or by its severance hereof. 

    

    5.7 Waiver.
      No
      waiver by any party, whether express or implied, of any provision of this
      Agreement, or of any breach or default, shall constitute a waiver of a breach
      of
      a similar or dissimilar provision or condition at the same time or any prior
      or
      subsequent time. 

    5.8 Opportunity
      to Consult with Counsel.
      Each
      of
      the parties hereto represents, Warrant and covenants that it has had ample
      opportunity to consider entering into this Agreement and has had an opportunity
      to consult with counsel regarding this Agreement prior to executing the same.
      The parties further agree that any rule that provides that an ambiguity within
      a
      document will be interpreted against the party drafting such document shall
      not
      apply.

    

    5.9 Brokers.
      The
      Company and the BATL represent and warrant to each other that they have not
      employed or dealt with any broker in connection with any transactions
      contemplated by this Agreement and shall save each other harmless from any
      and
      all claims at any time hereafter made for brokers’ or finders’ fees or
      commissions, which claim or claims arise out of any agreement alleged to have
      been made by any of them.

    

    5.10 Headings.
      The
      headings in this Agreement are solely for convenience of reference and shall
      be
      given no effect in the construction or interpretation of this
      Agreement.

    

    5.11 Survival.
      The
      agreement, covenants, representations and warranties contained in this Agreement
      shall survive the execution of this Agreement and the delivery of the BATL
      Securities hereunder indefinitely.

    

    5.12
       Arbitration. Any
      dispute, controversy or claim arising out of or relating to this Agreement
      or
      the breach thereof (including, any claim based upon a state or federal statute)
      will be settled by arbitration, before three arbitrator(s) in accordance with
      the Commercial Rules of the American Arbitration Association then in effect
      and
      judgment upon the award rendered by the arbitrator(s) may be entered in any
      court having jurisdiction. The arbitrator(s) will be selected by the parties,
      from a panel of attorney arbitrators experienced with the securities industry.
      Any arbitration shall be held in New York, New York. Either party hereto may
      request that any decision of the arbitrator be a reasoned decision and set
      forth
      the findings of fact and conclusions of law upon which the award is based.
      Either party may request that the arbitrator will honor claims of privilege
      recognized under applicable law and will use best efforts to protect
      confidential information (including, issuing the protective order). The parties
      shall share equally the costs of the arbitration and each party shall bear
      its
      own attorneys’ fees. Either party, before or during or after any arbitration,
      may apply to a court having jurisdiction for a temporary, provisional or
      permanent restraining order or injunction relief to protect its interests.
      Neither party nor their representatives nor the arbitrator(s) may disclose
      the
      existence or results of any arbitration hereunder, without the express prior
      written consent of all parties, except that either party may disclose an
      arbitration award to confirm it or enforce it or to the extent required by
      law.
      Prior to initiation of arbitration, the aggrieved party will give the other
      party written notice, in accordance with this Agreement, describing the claim
      and amount as to which it intends to initiate arbitration. Any service of
      process shall be served on the other party pursuant to this Agreement or as
      otherwise permitted under applicable law.

    

    

    [remainder
      of page intentionally left blank]

    

    

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      the
      parties have executed this Agreement as of the day and year first above
      written.

    

    

    ENERTECK
      CORPORATION

    

    

    By:
      /s/
      Dwaine Reese

    Name: Dwaine
      Reese

    Title: Chief
      Executive Officer

    

    

    BATL
      BIOENERGY LLC

    

    

    By:
      /s/
      Thomas Donino

    Name: Thomas
      Donino

    Title: President

    

    

    

    

    
      
         

      

      
        15EXHIBIT 4.1

                                                      Dated:  December ___, 2005

      NEITHER THIS  DEBENTURE NOR THE  SECURITIES  INTO WHICH THIS  DEBENTURE IS
      CONVERTIBLE   HAVE  BEEN  REGISTERED  WITH  THE  SECURITIES  AND  EXCHANGE
      COMMISSION OR THE  SECURITIES  COMMISSION OF ANY STATE IN RELIANCE UPON AN
      EXEMPTION FROM  REGISTRATION  UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE  "SECURITIES  ACT"),  AND,  ACCORDINGLY,  MAY NOT BE  OFFERED OR SOLD
      EXCEPT  PURSUANT  TO  AN  EFFECTIVE   REGISTRATION   STATEMENT  UNDER  THE
      SECURITIES  ACT  OR  PURSUANT  TO AN  AVAILABLE  EXEMPTION  FROM,  OR IN A
      TRANSACTION  NOT  SUBJECT  TO,  THE   REGISTRATION   REQUIREMENTS  OF  THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

No. CCP-3                                                             $2,000,000

                                   XSUNX, INC.

                          Secured Convertible Debenture

                             Due December ___, 2008

      This Secured  Convertible  Debenture (the "Debenture") is issued by XSUNX,
INC., a Colorado  corporation (the "Obligor"),  to CORNELL CAPITAL PARTNERS,  LP
(the  "Holder"),  pursuant to that certain  Securities  Purchase  Agreement (the
"Securities Purchase Agreement") of even date herewith.

      FOR VALUE  RECEIVED,  the Obligor hereby  promises to pay to the Holder or
its successors and assigns the principal sum of Two Million Dollars ($2,000,000)
together with accrued but unpaid  interest on or before  December ___, 2008 (the
"Maturity Date") in accordance with the following terms:

      Interest.  Interest  shall  accrue on the  outstanding  principal  balance
hereof  at an  annual  rate  equal  to ten  percent  (10%).  Interest  shall  be
calculated on the basis of a 360-day year and the actual number of days elapsed,
to the extent  permitted by applicable law.  Interest  hereunder will be paid to
the  Holder  or its  assignee  (as  defined  in  Section  4) in whose  name this
Debenture is registered on the records of the Obligor regarding registration and
transfers of Debentures (the "Debenture Register").

      Right of Redemption.  The Obligor at its option shall have the right, with
three (3) business days advance  written notice (the  "Redemption  Notice"),  to
redeem a portion or all amounts  outstanding  under this Debenture  prior to the
Maturity Date provided that the Closing Bid Price of the of the Obligor's Common
Stock, as reported by Bloomberg,  LP, is less than the Fixed Conversion Price at
the time of the  Redemption  Notice,  except as otherwise set forth herein.  The
Obligor shall pay an amount equal to the principal  amount being redeemed plus a
redemption premium ("Redemption  Premium") equal to fifteen percent (15%) of the
principal amount being redeemed, and accrued interest, (collectively referred to
as the  "Redemption  Amount").  The  Obligor  shall  deliver  to the  Holder the
Redemption Amount on the third (3rd) business day after the Redemption Notice.

<PAGE>

      Notwithstanding the foregoing in the event that the Obligor has elected to
redeem a portion of the outstanding  principal amount and accrued interest under
this  Debenture  the Holder  shall be permitted to convert all or any portion of
this Debenture during such three business day period.

      Security  Agreements.  This  Debenture is secured by a Security  Agreement
(the  "Security  Agreement")  dated as of July 14, 2005, as amended  between the
Obligor  and  the  Holder,  and a  Pledge  and  Escrow  Agreement  (the  "Pledge
Agreement")  dated as of July 14,  2005,  as  amended,  among the  Obligor,  the
Holder, and the Escrow Agent.

      Consent of Holder to Sell Capital Stock or Grant  Security  Interests.  So
long as any of the principal amount or interest on this Debenture remains unpaid
and unconverted, the Obligor shall not, without the prior consent of the Holder,
(i)  issue  or sell any  shares  of  Common  Stock or  preferred  stock  without
consideration or for  consideration per share less than the Closing Bid Price of
the Common Stock  determined  immediately  prior to its issuance,  (ii) issue or
sell any preferred  stock,  warrant,  option,  right,  contract,  call, or other
security or instrument  granting the holder  thereof the right to acquire Common
Stock without consideration or for consideration per share less than the Closing
Bid Price of the Common  Stock  determined  immediately  prior to its  issuance,
(iii) enter into any security instrument granting the holder a security interest
in any of the assets of the Obligor, or (iv) file any registration statements on
Form S-8 except to register up to up to 1,000,000  shares of Common Stock issued
to employees, officers or directors of the Obligor or its subsidiaries, provided
that such  issuances are approved by the  Obligor's  Board of Directors and that
the  recipients  have agreed to sell such shares in  accordance  with the volume
limitations  of Rule  144(e)  of the  General  Rules and  Regulations  under the
Securities Act of 1933. Notwithstanding the forgoing, the Obligor shall have the
right,  without the prior  written  consent of the Buyers,  to issue or sell any
common stock, preferred stock, or any warrant, option, right, contract, call, or
other  security or instrument  granting the holder  thereof the right to acquire
common  stock  provided  that (w) such shares are issued in  connection  with an
acquisition of or merger with MVSystems, Inc., or (x) the consideration received
for such  issuance is not less than the lower of the Fixed  Conversion  Price or
the Common  Stock's bid price at the time of such  issuance,  (y) the  aggregate
value of such shares  issued or issuable in any one month period does not exceed
ten percent  (10%) of the market  capitalization  of the  Obligor,  and (z) such
shares are restricted  shares.  Additionally,  the Obligor shall be permitted to
issue  warrants to purchase up to 10,000,000  shares of Common Stock without the
prior written  consent of the Buyers  provided that such shares  underlying  the
warrants are restricted shares. (The shares meeting the requirements  referenced
in  parts  (x),  (y) and (z) of  this  section,  along  with  10,000,000  shares
underlying the warrants  referenced above,  shall collectively be referred to as
the "Exempt Securities")

      Special Event. Notwithstanding the provisions of Section 3(c)(xi), without
the prior written consent, the Obligor may enter into a transaction in which the
Obligor  would be acquired,  purchased,  or merged into a third party other than
MVSystems, Inc. (each, a "Special Event") provided that upon the occurrence of a
Special  Event,  the Obligor  delivers to the Hodler notice of such  transaction
(the "Special Event Notice") and within three business days after deliver of the

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<PAGE>

Special Event  Notice,  the Holder shall notify the Obligor that it will either,
at its option,  (i) prior to the effectiveness of such transaction,  convert the
entire outstanding amount of this Debenture in accordance with the terms hereof,
or (ii)  permit the  Obligor to redeem  the  entire  outstanding  amount of this
Debenture,  notwithstanding  the limitation on redemptions set forth above, at a
redemption  price equal to the principal  amount  outstanding  plus a redemption
premium equal to twenty percent (20%) of the principal amount  outstanding,  and
accrued  interest.  Provided  that the  Obligor  honors the  Holder's  choice to
convert or to permit  redemption as set forth in this section,  the Holder shall
have no other rights upon the occurrence of a Special Event.

      This Debenture is subject to the following additional provisions:

      Section 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations,  as requested by the
Holder  surrendering  the  same.  No  service  charge  will  be  made  for  such
registration of transfer or exchange.

      Section 2. Events of Default.

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

            (i)   Any default in the payment of the principal of, interest on or
other charges in respect of this Debenture,  free of any claim of subordination,
as and when the same shall become due and payable  (whether on a Conversion Date
or the Maturity Date or by acceleration or otherwise);

            (ii)  The  Obligor  shall  fail to  observe  or  perform  any  other
covenant,  agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Debenture  (except as may be covered by Section
2(a)(i) hereof) or any  Transaction  Document (as defined in Section 4) which is
not cured with in the time prescribed;

            (iii) The Obligor or any  subsidiary of the Obligor shall  commence,
or there shall be commenced against the Obligor or any subsidiary of the Obligor
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any  successor  thereto,  or the  Obligor or any  subsidiary  of the  Obligor
commences any other proceeding under any reorganization, arrangement, adjustment
of debt,  relief of debtors,  dissolution,  insolvency or liquidation or similar
law of any  jurisdiction  whether  now or  hereafter  in effect  relating to the
Obligor or any  subsidiary  of the  Obligor or there is  commenced  against  the
Obligor or any  subsidiary  of the Obligor any such  bankruptcy,  insolvency  or
other  proceeding  which  remains  undismissed  for a period of 61 days;  or the
Obligor or any subsidiary of the Obligor is  adjudicated  insolvent or bankrupt;
or any order of relief or other order  approving  any such case or proceeding is
entered; or the Obligor or any subsidiary of the Obligor suffers any appointment
of any custodian,  private or court appointed receiver or the like for it or any
substantial part of its property which continues  undischarged or unstayed for a
period of sixty one (61) days;  or the Obligor or any  subsidiary of the Obligor
makes a general  assignment for the benefit of creditors;  or the Obligor or any

                                       3
<PAGE>

subsidiary of the Obligor shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay,  its debts  generally as they become due; or the
Obligor or any  subsidiary  of the Obligor shall call a meeting of its creditors
with a view to  arranging a  composition,  adjustment  or  restructuring  of its
debts;  or the  Obligor or any  subsidiary  of the  Obligor  shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the  foregoing;  or any corporate or other action is taken by the Obligor
or any  subsidiary  of the  Obligor  for the  purpose  of  effecting  any of the
foregoing;

            (iv)  The Obligor or any  subsidiary of the Obligor shall default in
any of its  obligations  under  any  other  debenture  or any  mortgage,  credit
agreement or other facility,  indenture agreement,  factoring agreement or other
instrument under which there may be issued,  or by which there may be secured or
evidenced any  indebtedness  for borrowed money or money due under any long term
leasing or factoring arrangement of the Obligor or any subsidiary of the Obligor
in an amount exceeding  $100,000,  whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would  otherwise
become due and payable;

            (v)   The  Common  Stock  shall  cease to be quoted  for  trading or
listed for  trading on either the Nasdaq  OTC  Bulletin  Board  ("OTC"),  Nasdaq
SmallCap Market, New York Stock Exchange,  American Stock Exchange or the Nasdaq
National  Market (each, a "Subsequent  Market") and shall not again be quoted or
listed for trading thereon within five (5) Trading Days of such delisting;

            (vi)  Except upon the occurrence of a Special Event,  the Obligor or
any  subsidiary  of the  Obligor  shall  be a party  to any  Change  of  Control
Transaction (as defined in Section 4);

            (vii) The  Obligor  shall  fail  to  file  the   Underlying   Shares
Registration Statement (as defined in Section 4) with the Commission (as defined
in Section 4), or the Underlying  Shares  Registration  Statement shall not have
been declared effective by the Commission,  in each case within the time periods
set forth in the Investor  Registration Rights Agreement  ("Registration  Rights
Agreement") of even date herewith between the Obligor and the Holder;

            (viii) If the  effectiveness of the Underlying  Shares  Registration
Statement  lapses for any reason or the Holder  shall not be permitted to resell
the shares of Common Stock underlying this Debenture under the Underlying Shares
Registration  Statement,  in either  case,  for more  than five (5)  consecutive
Trading  Days  or an  aggregate  of  eight  Trading  Days  (which  need  not  be
consecutive Trading Days);

            (ix)  The Obligor shall fail for any reason to deliver  Common Stock
certificates to a Holder prior to the fifth (5th) Trading Day after a Conversion
Date or the Obligor  shall  provide  notice to the Holder,  including  by way of
public  announcement,  at any time, of its intention not to comply with requests
for conversions of this Debenture in accordance with the terms hereof;

                                       4
<PAGE>

            (x)   The  Obligor  shall fail for any reason to deliver the payment
in cash  pursuant to a Buy-In (as defined  herein)  within  three (3) days after
notice is claimed delivered hereunder;

      (b)   During the time that any portion of this  Debenture is  outstanding,
if any Event of Default has occurred and shall continue for a period of ten (10)
days  after a notice of such  default  has been  delivered  by the Holder to the
Obligor (the "Notice  Period"),  the full  principal  amount of this  Debenture,
together with interest and other amounts owing in respect  thereof,  to the date
of  acceleration  shall become at the  Holder's  election,  immediately  due and
payable in cash,  provided  however,  the Holder may request  (but shall have no
obligation  to request)  payment of such amounts in Common Stock of the Obligor.
In addition to any other remedies,  the Holder shall have the right (but not the
obligation)  to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide and the Obligor hereby waives any  presentment,  demand,  protest or
other notice of any kind, and the Holder may immediately and without  expiration
of any grace period  (other than the Notice  Period)  enforce any and all of its
rights and  remedies  hereunder  and all other  remedies  available  to it under
applicable law. Such  declaration may be rescinded and annulled by Holder at any
time prior to payment  hereunder.  No such  rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.  Upon an
Event of Default,  notwithstanding  any other provision of this Debenture or any
Transaction  Document,  the Holder  shall have no  obligation  to comply with or
adhere to any  limitations,  if any, on the  conversion of this Debenture or the
sale of the Underlying Shares.

      Section 3. Conversion.

      (a)   (i) Conversion at Option of Holder.

            (A)   This  Debenture  shall be  convertible  into  shares of Common
Stock at the option of the Holder, in whole or in part at any time and from time
to time, after the Original Issue Date (as defined in Section 4) (subject to the
limitations on conversion set forth in Section 3(a)(ii)  hereof).  The number of
shares of Common Stock issuable upon a conversion  hereunder equals the quotient
obtained  by  dividing  (x)  the  outstanding  amount  of this  Debenture  to be
converted  by (y) the  Conversion  Price (as  defined in Section  3(c)(i)).  The
Obligor shall deliver Common Stock certificates to the Holder prior to the Fifth
(5th) Trading Day after a Conversion Date.

            (B)   Notwithstanding  anything to the contrary contained herein, if
on any  Conversion  Date:  (1) the number of shares of Common  Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is  insufficient  to pay  principal  and interest  hereunder in shares of Common
Stock; (2) the Common Stock is not listed or quoted for trading on the OTC or on
a  Subsequent  Market;  or (3) the  Obligor  has  failed to timely  satisfy  its
conversion;  then,  at the  option  of the  Holder,  the  Obligor,  in  lieu  of
delivering shares of Common Stock pursuant to Section 3(a)(i)(A), shall deliver,
within three (3) Trading Days of each applicable  Conversion  Date, an amount in
cash equal to the product of the  outstanding  principal  amount to be converted
plus any interest due therein divided by the Conversion  Price and multiplied by
the highest  closing price of the stock from date of the conversion  notice till
the date that such cash payment is made.

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<PAGE>

      Further,  if the Obligor shall not have  delivered any cash due in respect
of conversion of this  Debenture or as payment of interest  thereon by the fifth
(5th) Trading Day after the  Conversion  Date,  the Holder may, by notice to the
Obligor, require the Obligor to issue shares of Common Stock pursuant to Section
3(c), except that for such purpose the Conversion Price applicable thereto shall
be the lesser of the Conversion  Price on the Conversion Date and the Conversion
Price on the date of such Holder demand.  Any such shares will be subject to the
provisions of this Section.

            (C)   The Holder  shall  effect  conversions  by  delivering  to the
Obligor  a  completed  notice  in the  form  attached  hereto  as  Exhibit  A (a
"Conversion Notice").  The date on which a Conversion Notice is delivered is the
"Conversion  Date." Unless the Holder is converting the entire  principal amount
outstanding  under this  Debenture,  the Holder is not  required  to  physically
surrender  this  Debenture  to the  Obligor  in  order  to  effect  conversions.
Conversions  hereunder  shall  have  the  effect  of  lowering  the  outstanding
principal  amount of this Debenture plus all accrued and unpaid interest thereon
in an amount  equal to the  applicable  conversion.  The Holder and the  Obligor
shall maintain  records showing the principal  amount  converted and the date of
such conversions. In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest error.

            (ii)  Certain Conversion Restrictions.

                  (A)   A Holder  may not  convert  this  Debenture  or  receive
shares of Common  Stock as  payment of  interest  hereunder  to the extent  such
conversion  or receipt of such  interest  payment  would  result in the  Holder,
together  with any  affiliate  thereof,  beneficially  owning (as  determined in
accordance  with Section  13(d) of the  Exchange  Act and the rules  promulgated
thereunder)  in  excess of 4.9% of the then  issued  and  outstanding  shares of
Common  Stock,  including  shares  issuable upon  conversion  of, and payment of
interest  on, this  Debenture  held by such  Holder  after  application  of this
Section.  Since the Holder  will not be  obligated  to report to the Obligor the
number  of  shares  of  Common  Stock it may  hold at the  time of a  conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 4.9% of the then outstanding shares of Common Stock
without regard to any other shares which may be beneficially owned by the Holder
or an affiliate  thereof,  the Holder shall have the authority and obligation to
determine  whether the  restriction  contained  in this  Section  will limit any
particular  conversion  hereunder  and to the extent that the Holder  determines
that the limitation  contained in this Section  applies,  the  determination  of
which portion of the principal amount of this Debenture is convertible  shall be
the  responsibility  and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of this Debenture that,  without regard
to any other  shares that the Holder or its  affiliates  may  beneficially  own,
would result in the issuance in excess of the permitted  amount  hereunder,  the
Obligor shall notify the Holder of this fact and shall honor the  conversion for
the maximum  principal  amount permitted to be converted on such Conversion Date
in  accordance  with the periods  described  in Section  3(a)(i)(A)  and, at the
option of the Holder, either retain any principal amount tendered for conversion
in excess of the permitted  amount  hereunder for future  conversions  or return
such excess principal  amount to the Holder.  The provisions of this Section may
be waived by a Holder (but only as to itself and not to any other  Holder)  upon
not less  than 65 days  prior  notice to the  Obligor.  Other  Holders  shall be
unaffected by any such waiver.

                                       6
<PAGE>

                  (B)   Unless  waived  by the  Obligor,  in no event  shall the
Holder,  together  with its  affiliates,  be  entitled  to convert  more than an
aggregate of $350,000 of principal  amount of this  Debenture  together with all
other debentures issued to the Holder in connection with the Securities Purchase
Agreement at the Market Conversion Price in any thirty (30) day period. Upon the
occurrence  of an Event of Default,  the  restriction  set forth in this section
shall not apply.

      (b)   (i) Nothing  herein  shall limit a Holder's  right to pursue  actual
damages  or declare  an Event of  Default  pursuant  to Section 2 herein for the
Obligor 's failure to deliver  certificates  representing shares of Common Stock
upon conversion  within the period  specified  herein and such Holder shall have
the right to pursue all remedies  available to it at law or in equity including,
without limitation,  a decree of specific  performance and/or injunctive relief,
in each case  without  the need to post a bond or provide  other  security.  The
exercise  of any such  rights  shall not  prohibit  the Holder  from  seeking to
enforce damages pursuant to any other Section hereof or under applicable law.

            (ii)  In addition to any other rights  available  to the Holder,  if
the Obligor  fails to deliver to the Holder  such  certificate  or  certificates
pursuant  to  Section  3(a)(i)(A)  by the  fifth  (5th)  Trading  Day  after the
Conversion  Date, and if after such fifth (5th) Trading Day the Holder purchases
(in an open  market  transaction  or  otherwise)  Common  Stock  to  deliver  in
satisfaction of a sale by such Holder of the Underlying  Shares which the Holder
anticipated receiving upon such conversion (a "Buy-In"),  then the Obligor shall
(A) pay in cash to the Holder  (in  addition  to any  remedies  available  to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including  brokerage  commissions,  if any) for the Common  Stock so  purchased
exceeds (y) the product of (1) the  aggregate  number of shares of Common  Stock
that such Holder  anticipated  receiving from the conversion at issue multiplied
by (2) the market  price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder,  either reissue
a  Debenture  in the  principal  amount  equal to the  principal  amount  of the
attempted  conversion  or  deliver  to the Holder the number of shares of Common
Stock that  would have been  issued had the  Obligor  timely  complied  with its
delivery  requirements  under  Section  3(a)(i)(A).  For example,  if the Holder
purchases  Common  Stock  having a total  purchase  price of  $11,000 to cover a
Buy-In with respect to an attempted  conversion  of  Debentures  with respect to
which the market price of the Underlying  Shares on the date of conversion was a
total of $10,000 under clause (A) of the  immediately  preceding  sentence,  the
Obligor shall be required to pay the Holder $1,000. The Holder shall provide the
Obligor  written notice  indicating the amounts payable to the Holder in respect
of the Buy-In.

      (c)   (i) The conversion price (the  "Conversion  Price") in effect on any
Conversion Date shall be equal to the lesser of (a) $0.38 (the "Fixed Conversion
Price") or (b) ninety five percent  (95%) of the lowest  daily  volume  weighted
average price (the "VWAP") of the Common Stock,  as quoted by Bloomberg,  LP, of
the thirty (30) trading days  immediately  preceding  the  Conversion  Date (the
"Market Conversion Price"). The Fixed Conversion Price and the Market Conversion
Price are  collectively  referred to as the  "Conversion  Price." The Conversion
Price may be adjusted pursuant to the other terms of this Debenture.

                                       7
<PAGE>

            (ii)  If  the  Obligor,   at  any  time  while  this   Debenture  is
outstanding,  shall (a) pay a stock dividend or otherwise make a distribution or
distributions  on  shares  of its  Common  Stock or any  other  equity or equity
equivalent   securities  payable  in  shares  of  Common  Stock,  (b)  subdivide
outstanding  shares of Common Stock into a larger number of shares,  (c) combine
(including  by way of reverse  stock split)  outstanding  shares of Common Stock
into a smaller number of shares, or (d) issue by  reclassification  of shares of
the  Common  Stock any shares of capital  stock of the  Obligor,  then the Fixed
Conversion  Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common  Stock  (excluding  treasury  shares,  if any)
outstanding  before such event and of which the denominator  shall be the number
of shares of Common Stock  outstanding  after such event.  Any  adjustment  made
pursuant to this Section  shall become  effective  immediately  after the record
date for the determination of stockholders  entitled to receive such dividend or
distribution and shall become effective  immediately after the effective date in
the case of a subdivision, combination or re-classification.

            (iii) If  the  Obligor,   at  any  time  while  this   Debenture  is
outstanding,  shall issue  rights,  options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Fixed Conversion  Price, then
the Fixed  Conversion  Price shall be  multiplied  by a  fraction,  of which the
denominator  shall be the  number  of  shares  of the  Common  Stock  (excluding
treasury  shares,  if any) outstanding on the date of issuance of such rights or
warrants  (plus the number of  additional  shares of Common  Stock  offered  for
subscription  or purchase),  and of which the  numerator  shall be the number of
shares of the Common Stock (excluding  treasury  shares,  if any) outstanding on
the date of issuance of such rights or warrants, plus the number of shares which
the  aggregate  offering  price of the total  number of shares so offered  would
purchase at the Fixed Conversion  Price.  Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately after
the record date for the  determination of stockholders  entitled to receive such
rights,  options or warrants.  However,  upon the  expiration of any such right,
option or warrant to purchase  shares of the Common  Stock the issuance of which
resulted  in an  adjustment  in the  Fixed  Conversion  Price  pursuant  to this
Section,  if any such right,  option or warrant  shall expire and shall not have
been  exercised,   the  Fixed  Conversion  Price  shall  immediately  upon  such
expiration  be  recomputed  and effective  immediately  upon such  expiration be
increased  to the  price  which it would  have been  (but  reflecting  any other
adjustments  in the Fixed  Conversion  Price made pursuant to the  provisions of
this Section after the issuance of such rights or warrants)  had the  adjustment
of the Fixed Conversion Price made upon the issuance of such rights,  options or
warrants  been made on the basis of offering for  subscription  or purchase only
that number of shares of the Common Stock  actually  purchased upon the exercise
of such rights, options or warrants actually exercised.

            (iv)  If the Obligor or any subsidiary  thereof,  as applicable,  at
any time while this Debenture is outstanding,  except for the Exempt Securities,
shall  issue  shares of  Common  Stock or  rights,  warrants,  options  or other
securities  or debt that are  convertible  into or  exchangeable  for  shares of
Common Stock ("Common Stock Equivalents") entitling any Person to acquire shares
of Common Stock, at a price per share less than the Fixed  Conversion  Price (if
the holder of the Common Stock or Common Stock Equivalent so issued shall at any
time,  whether by operation of purchase  price  adjustments,  reset  provisions,
floating  conversion,  exercise  or  exchange  prices  or  otherwise,  or due to
warrants,  options or rights per share which is issued in  connection  with such
issuance,  be  entitled to receive  shares of Common  Stock at a price per share
which is less than the Fixed Conversion  Price, such issuance shall be deemed to
have  occurred  for less than the Fixed  Conversion  Price),  then,  at the sole
option of the Holder, the Fixed Conversion Price shall be adjusted to mirror the

                                       8
<PAGE>

conversion,  exchange or purchase  price for such Common  Stock or Common  Stock
Equivalents  (including any reset provisions  thereof) at issue. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are issued.
The Obligor  shall notify the Holder in writing,  no later than one (1) business
day  following  the  issuance  of any Common  Stock or Common  Stock  Equivalent
subject to this Section, indicating therein the applicable issuance price, or of
applicable reset price, exchange price, Fixed Conversion Price and other pricing
terms.  No adjustment  under this Section shall be made as a result of issuances
and  exercises  of  options  to  purchase  shares of  Common  Stock  issued  for
compensatory  purposes  pursuant to any of the  Obligor's  stock option or stock
purchase plans.

            (v)   If  the  Obligor,   at  any  time  while  this   Debenture  is
outstanding,  shall  distribute  to all holders of Common  Stock (and not to the
Holder)  evidences  of its  indebtedness  or assets or  rights  or  warrants  to
subscribe  for or  purchase  any  security,  then in each  such  case the  Fixed
Conversion Price at which this Debenture shall  thereafter be convertible  shall
be determined by multiplying the Fixed  Conversion  Price in effect  immediately
prior to the record date fixed for  determination  of  stockholders  entitled to
receive such  distribution by a fraction of which the  denominator  shall be the
Closing Bid Price determined as of the record date mentioned above, and of which
the numerator  shall be such Closing Bid Price on such record date less the then
fair market  value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith.  In either case the
adjustments  shall be  described  in a  statement  provided to the Holder of the
portion  of  assets  or  evidences  of   indebtedness  so  distributed  or  such
subscription  rights  applicable to one share of Common Stock.  Such  adjustment
shall be made whenever any such  distribution is made and shall become effective
immediately after the record date mentioned above.

            (vi)  In case of any  reclassification  of the  Common  Stock or any
compulsory  share exchange  pursuant to which the Common Stock is converted into
other securities,  cash or property,  the Holder shall have the right thereafter
to, at its option, (A) convert the then outstanding  principal amount,  together
with all accrued but unpaid  interest and any other amounts then owing hereunder
in respect of this Debenture into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of the Common Stock
following  such  reclassification  or share  exchange,  and the  Holder  of this
Debenture  shall  be  entitled  upon  such  event  to  receive  such  amount  of
securities,  cash or property  as the shares of the Common  Stock of the Obligor
into which the then outstanding principal amount,  together with all accrued but
unpaid  interest and any other  amounts then owing  hereunder in respect of this
Debenture could have been converted  immediately prior to such  reclassification
or share exchange would have been entitled, or (B) require the Obligor to prepay
the outstanding principal amount of this Debenture,  plus all interest and other
amounts due and payable  thereon.  The entire  prepayment price shall be paid in
cash. This provision shall  similarly apply to successive  reclassifications  or
share exchanges.

            (vii) The Obligor shall maintain a share reserve at all times of not
less than five  times the  number  of  shares  of  Common  Stock  issuable  upon
conversion of this  Debenture at the  applicable  Fixed  Conversion  Price;  and
within  three (3)  Business  Days  following  the  receipt  by the  Obligor of a
Holder's  notice  that  such  minimum  number  of  Underlying  Shares  is not so
reserved,  the Obligor shall promptly  reserve a sufficient  number of shares of
Common Stock to comply with such requirement.

                                       9
<PAGE>

            (viii) All calculations  under this Section 3 shall be rounded up to
the nearest $0.001 of a share.

            (ix)  Whenever the Fixed  Conversion  Price is adjusted  pursuant to
Section 3 hereof, the Obligor shall promptly mail to the Holder a notice setting
forth the Fixed Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.

            (x)   If (A) the  Obligor  shall  declare a  dividend  (or any other
distribution)  on the Common  Stock;  (B) the  Obligor  shall  declare a special
nonrecurring  cash  dividend on or a  redemption  of the Common  Stock;  (C) the
Obligor  shall  authorize the granting to all holders of the Common Stock rights
or warrants to  subscribe  for or  purchase  any shares of capital  stock of any
class or of any  rights;  (D) the  approval of any  stockholders  of the Obligor
shall be required in connection with any  reclassification  of the Common Stock,
any  consolidation  or  merger  to which  the  Obligor  is a party,  any sale or
transfer  of all or  substantially  all of the  assets  of the  Obligor,  of any
compulsory  share  exchange  whereby the Common  Stock is  converted  into other
securities,  cash or property;  or (E) the Obligor shall authorize the voluntary
or  involuntary  dissolution,  liquidation  or winding up of the  affairs of the
Obligor;  then, in each case, the Obligor shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture,  and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the  Obligor,  at least  twenty (20)  calendar  days prior to the
applicable record or effective date hereinafter  specified, a notice stating (x)
the date on which a record  is to be taken  for the  purpose  of such  dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such  dividend,  distributions,   redemption,  rights  or  warrants  are  to  be
determined  or (y)  the  date on  which  such  reclassification,  consolidation,
merger,  sale,  transfer or share  exchange is expected to become  effective  or
close,  and the date as of which it is expected that holders of the Common Stock
of record  shall be entitled to exchange  their  shares of the Common  Stock for
securities,  cash or other  property  deliverable  upon  such  reclassification,
consolidation,  merger,  sale,  transfer or share exchange,  provided,  that the
failure to mail such  notice or any defect  therein  or in the  mailing  thereof
shall not affect the validity of the corporate  action  required to be specified
in such  notice.  The Holder is entitled to convert  this  Debenture  during the
20-day calendar period  commencing the date of such notice to the effective date
of the event triggering such notice.

            (xi)  In case of any (1) merger or  consolidation  of the Obligor or
any  subsidiary of the Obligor with or into another  Person,  or (2) sale by the
Obligor or any  subsidiary of the Obligor of more than one-half of the assets of
the Obligor in one or a series of related transactions,  a Holder shall have the
right to (A) exercise any rights under Section  2(b),  (B) convert the aggregate
amount of this  Debenture  then  outstanding  into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled  upon such event or series of related  events to receive such amount
of  securities,  cash and property as the shares of Common Stock into which such
aggregate   principal  amount  of  this  Debenture  could  have  been  converted

                                       10
<PAGE>

immediately  prior to such  merger,  consolidation  or  sales  would  have  been
entitled, or (C) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible  Debenture  with a principal  amount
equal to the  aggregate  principal  amount of this  Debenture  then held by such
Holder,  plus all accrued and unpaid  interest and other amounts owing  thereon,
which such  newly  issued  convertible  Debenture  shall  have  terms  identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and  privileges of the Holder of this Debenture
set forth  herein and the  agreements  pursuant  to which this  Debentures  were
issued. In the case of clause (C), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible  Debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock  would  receive in such  transaction  and the  Conversion  Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger,  sale or consolidation  shall include such terms so as
to  continue to give the Holder the right to receive  the  securities,  cash and
property set forth in this Section upon any  conversion or redemption  following
such event. This provision shall similarly apply to successive such events.

      (d)   The  Obligor  covenants  that it will at all times  reserve and keep
available out of its authorized  and unissued  shares of Common Stock solely for
the  purpose of  issuance  upon  conversion  of this  Debenture  and  payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional  requirements  of the  Obligor as to  reservation  of such shares set
forth in this  Debenture) be issuable  (taking into account the  adjustments and
restrictions  of Sections 2(b) and 3(c)) upon the conversion of the  outstanding
principal  amount of this  Debenture  and  payment of  interest  hereunder.  The
Obligor  covenants  that all shares of Common  Stock  that shall be so  issuable
shall,  upon  issue,  be duly and  validly  authorized,  issued and fully  paid,
nonassessable  and, if the  Underlying  Shares  Registration  Statement has been
declared  effective  under the  Securities  Act,  registered  for public sale in
accordance with such Underlying Shares Registration Statement.

      (e)   Upon a  conversion  hereunder  the Obligor  shall not be required to
issue stock certificates  representing  fractions of shares of the Common Stock,
but may if  otherwise  permitted,  make a cash  payment  in respect of any final
fraction of a share based on the Closing Bid Price at such time.  If the Obligor
elects  not,  or is unable,  to make such a cash  payment,  the Holder  shall be
entitled to receive,  in lieu of the final fraction of a share,  one whole share
of Common Stock.

      (f)   The  issuance  of  certificates  for shares of the  Common  Stock on
conversion of this Debenture  shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such  certificate,  provided  that the Obligor shall not be
required to pay any tax that may be payable in respect of any transfer  involved
in the issuance and delivery of any such  certificate  upon conversion in a name
other than that of the Holder of such  Debenture  so  converted  and the Obligor
shall not be required to issue or deliver such certificates  unless or until the
person or persons requesting the issuance thereof shall have paid to the Obligor
the  amount of such tax or shall have  established  to the  satisfaction  of the
Obligor that such tax has been paid.

                                       11
<PAGE>

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

If to the Company, to:       XsunX, Inc.
                             65 Enterprise
                             Aliso Viejo, CA 92656
                             Attention: Tom Djokovich
                             Telephone: (949) 330-8060
                             Facsimile: (949) 266-5823

With a copy to:              Sichenzia Ross Friedman Ference LLP
                             1065 Avenue of the Americas
                             New York, NY 10018
                             Telephone: (212) 930-9700
                             Facsimile: (212) 930-9725

If to the Holder:            Cornell Capital Partners, LP
                             101 Hudson Street, Suite 3700
                             Jersey City, NJ  07303
                             Attention: Mark Angelo
                             Telephone: (201) 985-8300

With a copy to:              David Gonzalez, Esq.
                             101 Hudson Street - Suite 3700
                             Jersey City, NJ 07302
                             Telephone: (201) 985-8300
                             Facsimile: (201) 985-8266

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

      Section 4. Definitions. For the purposes hereof, the following terms shall
have the following meanings:

                                       12
<PAGE>

      "Business  Day"  means any day except  Saturday,  Sunday and any day which
shall be a federal  legal holiday in the United States or a day on which banking
institutions  are  authorized or required by law or other  government  action to
close.

      "Change of Control Transaction" means the occurrence of (a) an acquisition
after the date hereof by an  individual or legal entity or "group" (as described
in Rule  13d-5(b)(1)  promulgated  under the Exchange Act) of effective  control
(whether through legal or beneficial  ownership of capital stock of the Obligor,
by  contract or  otherwise)  of in excess of fifty  percent  (50%) of the voting
securities of the Obligor (except that the  acquisition of voting  securities by
the Holder  shall not  constitute a Change of Control  Transaction  for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of  directors  of the  Obligor  which is not  approved by a
majority of those  individuals  who are members of the board of directors on the
date hereof (or by those  individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors  who are members on the date
hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of
the assets of the Obligor or any subsidiary of the Obligor in one or a series of
related  transactions  with or into another entity,  or (d) the execution by the
Obligor of an agreement to which the Obligor is a party or by which it is bound,
providing for any of the events set forth above in (a), (b) or (c).

      "Commission" means the Securities and Exchange Commission.

      "Common  Stock" means the common stock,  no par value,  of the Obligor and
stock of any other  class  into which such  shares may  hereafter  be changed or
reclassified.

      "Conversion  Date"  shall mean the date upon  which the  Holder  gives the
Obligor  notice of their  intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.

      "Closing Bid Price" means the price per share in the last  reported  trade
of the Common Stock on the OTC or on the exchange which the Common Stock is then
listed as quoted by Bloomberg, LP.

      "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      "Original  Issue Date"  shall mean the date of the first  issuance of this
Debenture  regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.

      "Person" means a corporation, an association, a partnership, organization,
a business,  an individual,  a government or political  subdivision thereof or a
governmental agency.

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

      "Trading  Day" means a day on which the shares of Common  Stock are quoted
on the OTC or quoted or traded on such Subsequent  Market on which the shares of
Common  Stock are then  quoted or listed;  provided,  that in the event that the
shares of Common  Stock are not listed or quoted,  then Trading Day shall mean a
Business Day.

                                       13
<PAGE>

      "Transaction  Documents"  means the Securities  Purchase  Agreement or any
other agreement  delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Pledge Agreement, the Security Agreement, the
Irrevocable Transfer Agent Instructions, and the Registration Rights Agreement.

      "Underlying  Shares"  means  the  shares  of Common  Stock  issuable  upon
conversion of this  Debenture or as payment of interest in  accordance  with the
terms hereof.

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

      Section 5. Except as  expressly  provided  herein,  no  provision  of this
Debenture  shall  alter or impair  the  obligations  of the  Obligor,  which are
absolute and unconditional,  to pay the principal of, interest and other charges
(if any) on, this  Debenture at the time,  place,  and rate,  and in the coin or
currency,  herein  prescribed.  This  Debenture  is a direct  obligation  of the
Obligor.  This  Debenture  ranks  pari passu  with all other  Debentures  now or
hereafter issued under the terms set forth herein.  As long as this Debenture is
outstanding,  the Obligor shall not and shall cause their  subsidiaries  not to,
without the consent of the Holder,  (i) amend its certificate of  incorporation,
bylaws or other  charter  documents so as to adversely  affect any rights of the
Holder;  (ii)  repay,  repurchase  or offer to repay,  repurchase  or  otherwise
acquire shares of its Common Stock or other equity  securities  other than as to
the Underlying  Shares to the extent permitted or required under the Transaction
Documents;  or  (iii)  enter  into  any  agreement  with  respect  to any of the
foregoing.

      Section  6. This  Debenture  shall not  entitle  the  Holder to any of the
rights of a stockholder of the Obligor,  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
Obligor,  unless  and to the extent  converted  into  shares of Common  Stock in
accordance with the terms hereof.

      Section 7. If this Debenture is mutilated,  lost, stolen or destroyed, the
Obligor shall  execute and deliver,  in exchange and  substitution  for and upon
cancellation of the mutilated Debenture,  or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated,  lost, stolen or destroyed but only upon receipt of
evidence  of such  loss,  theft or  destruction  of such  Debenture,  and of the
ownership hereof, and indemnity,  if requested,  all reasonably  satisfactory to
the Obligor.

      Section 8. No  indebtedness  of the Obligor is senior to this Debenture in
right of payment, whether with respect to interest,  damages or upon liquidation
or dissolution or otherwise.  Without the Holder's consent, the Obligor will not
and will not permit any of their subsidiaries to, directly or indirectly,  enter
into, create,  incur, assume or suffer to exist any indebtedness of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any  interest  therein or any income or profits  there from that is senior in
any respect to the obligations of the Obligor under this Debenture.

                                       14
<PAGE>

      Section 9. This Debenture shall be governed by and construed in accordance
with the laws of the State of New Jersey,  without giving effect to conflicts of
laws thereof.  Each of the parties  consents to the jurisdiction of the Superior
Courts of the State of New Jersey sitting in Hudson  County,  New Jersey and the
U.S. District Court for the District of New Jersey sitting in Newark, New Jersey
in connection  with any dispute  arising under this Debenture and hereby waives,
to the maximum extent  permitted by law, any objection,  including any objection
based on forum non  conveniens  to the bringing of any such  proceeding  in such
jurisdictions.

      Section 10. If the Obligor fails to strictly comply with the terms of this
Debenture,  then the Obligor shall  reimburse the Holder  promptly for all fees,
costs and expenses, including, without limitation,  attorneys' fees and expenses
incurred  by the  Holder  in any  action  in  connection  with  this  Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout,  and/or in  connection  with the  rendering  of legal  advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due  to the  Holder,  (iii)  defending  or  prosecuting  any  proceeding  or any
counterclaim to any proceeding or appeal;  or (iv) the protection,  preservation
or enforcement of any rights or remedies of the Holder.

      Section 11. Any waiver by the Holder of a breach of any  provision of this
Debenture  shall  not  operate  as or be  construed  to be a waiver of any other
breach  of such  provision  or of any  breach  of any  other  provision  of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more  occasions  shall not be considered a waiver or
deprive that party of the right  thereafter  to insist upon strict  adherence to
that term or any other term of this Debenture. Any waiver must be in writing.

      Section 12. If any  provision  of this  Debenture  is invalid,  illegal or
unenforceable,  the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance,  it shall  nevertheless
remain applicable to all other persons and  circumstances.  If it shall be found
that any interest or other amount deemed  interest due  hereunder  shall violate
applicable laws governing  usury,  the applicable rate of interest due hereunder
shall  automatically be lowered to equal the maximum permitted rate of interest.
The Obligor  covenants  (to the extent that it may lawfully do so) that it shall
not at any time insist upon,  plead, or in any manner  whatsoever  claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would  prohibit  or forgive  the  Obligor  from paying all or any portion of the
principal of or interest on this  Debenture  as  contemplated  herein,  wherever
enacted,  now or at any time  hereafter  in  force,  or  which  may  affect  the
covenants or the performance of this  indenture,  and the Obligor (to the extent
it may lawfully do so) hereby  expressly waives all benefits or advantage of any
such law,  and  covenants  that it will not, by resort to any such law,  hinder,
delay or impeded the  execution of any power herein  granted to the Holder,  but
will  suffer and permit  the  execution  of every such as though no such law has
been enacted.

                                       15
<PAGE>

      Section 13.  Whenever any payment or other  obligation  hereunder shall be
due on a day other than a Business  Day,  such payment shall be made on the next
succeeding Business Day.

      Section 14. THE PARTIES HEREBY  KNOWINGLY,  VOLUNTARILY AND  INTENTIONALLY
WAIVE  THE  RIGHT  ANY OF THEM  MAY HAVE TO A TRIAL  BY JURY IN  RESPECT  OF ANY
LITIGATION  BASED  HEREON OR ARISING OUT OF,  UNDER OR IN  CONNECTION  WITH THIS
AGREEMENT  OR ANY  TRANSACTION  DOCUMENT  OR ANY  COURSE OF  CONDUCT,  COURSE OF
DEALING,  STATEMENTS  (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS
PROVISION  IS  A  MATERIAL  INDUCEMENT  FOR  THE  PARTIES'  ACCEPTANCE  OF  THIS
AGREEMENT.

                   [REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]

                                       16
<PAGE>

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

                                               XSUNX, INC.

                                               By:
                                                  ------------------------------
                                                  Name:  Tom Djokovich
                                                  Title: Chief Executive Officer

                                       17
<PAGE>

                                   EXHIBIT "A"

                              NOTICE OF CONVERSION

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

TO:

      The undersigned  hereby  irrevocably  elects to convert $ of the principal
amount of the above  Debenture  into  Shares  of  Common  Stock of XsunX,  Inc.,
according to the conditions  stated  therein,  as of the Conversion Date written
below.

Conversion Date:             ___________________________________________________
Applicable Conversion Price: ___________________________________________________
Signature:                   ___________________________________________________
Name:                        ___________________________________________________
Address:                     ___________________________________________________
Amount to be converted:      $__________________________________________________
Amount of Debenture
unconverted:                 $__________________________________________________
Conversion Price per share:  $__________________________________________________
Number of  shares of Common
Stock to be issued:          ___________________________________________________
Please issue the shares of
Common Stock in the following
name and to the following
address:                     ___________________________________________________
Issue to:                    ___________________________________________________
Authorized Signature:        ___________________________________________________
Name:                        ___________________________________________________
Title:                       ___________________________________________________
Phone Number:                ___________________________________________________
Broker DTC Participant Code: ___________________________________________________
Account Number:              ___________________________________________________

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