Document:

EXHIBIT 10.9

                          SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of June 21,
2004, by and among PRODUCTIVITY TECHNOLOGIES CORPORATION, a Delaware corporation
(the   "Company"),   and  the  Buyers  listed  on  Schedule  I  attached  hereto
(individually, a "Buyer" or collectively "Buyers").

                                   WITNESSETH:

     WHEREAS,  the Company and the Buyer(s) are  executing and  delivering  this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation  D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");

     WHEREAS,  the  parties  desire  that,  upon the  terms and  subject  to the
conditions  contained herein,  the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase up to Three Hundred Thousand
Dollars   ($300,000)  of  secured   convertible   debentures  (the  "Convertible
Debentures"),  which shall be  convertible  into shares of the Company's  common
stock,  par value $0.001 (the "Common  Stock") (as  converted,  the  "Conversion
Shares") of which Two Hundred Thousand Dollars ($200,000) shall be funded on the
fifth (5th) business day following the date hereof (the "First Closing"),  Fifty
Thousand  Dollars  ($50,000)  shall be funded on the fifth  (5th)  business  day
following  the date a Form  211,  in proper  form,  is filed  with the  National
Association of Securities Dealers,  Inc. (the "Second Closing"),  Fifty Thousand
Dollars  ($50,000) shall be funded on the fifth (5th) business day following the
date  the  registration  statement  (the  "Registration  Statement")  is  filed,
pursuant the Investor  Registration Rights Agreement dated the date hereof, with
the United States  Securities  and Exchange  Commission  (the "SEC") (the "Third
Closing"),  (individually referred to as a "Closing" collectively referred to as
the  "Closings"),  for a total  purchase  price of up to Three Hundred  Thousand
Dollars  ($300,000),  (the "Purchase Price") in the respective amounts set forth
opposite each Buyer(s) name on Schedule I (the "Subscription Amount"); and

     WHEREAS,   contemporaneously  with  the  execution  and  delivery  of  this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement  substantially in the form attached hereto as Exhibit A (the "Investor
Registration  Rights  Agreement")  pursuant  to which the  Company has agreed to
provide  certain  registration  rights  under  the  1933 Act and the  rules  and
regulations promulgated there under, and applicable state securities laws; and

     WHEREAS,  the aggregate proceeds of the sale of the Convertible  Debentures
contemplated  hereby shall be held in escrow  pursuant to the terms of an escrow
agreement  substantially in the form of the Escrow Agreement  attached hereto as
Exhibit B.

     WHEREAS,   contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties hereto are executing and delivering Irrevocable Transfer
Agent  Instructions  substantially in the form attached hereto as Exhibit C (the
"Irrevocable Transfer Agent Instructions").
<PAGE>

     WHEREAS,   contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties hereto are executing and delivering a Security Agreement
substantially   in  the  form  attached  hereto  as  Exhibit  D  (the  "Security
Agreement")  pursuant  to which the  Company  has agreed to provide  the Buyer a
security interest in Pledged Collateral (as this term is defined in the Security
Agreement  dated the date  hereof) to secure  Company's  obligations  under this
Agreement,   the  Convertible   Debenture,   the  Investor  Registration  Rights
Agreement,  the Irrevocable Transfer Agent Instructions,  the Security Agreement
or any other obligations of the Company to the Investor; and

     NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  and  other
agreements  contained in this Agreement the Company and the Buyer(s)hereby agree
as follows:

     1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

          (a) Purchase of Convertible  Debentures.  Subject to the  satisfaction
     (or  waiver)  of the terms and  conditions  of this  Agreement,  each Buyer
     agrees,  severally  and not  jointly,  to  purchase  at Closing (as defined
     herein  below)  and the  Company  agrees to sell and  issue to each  Buyer,
     severally and not jointly,  at Closing,  Convertible  Debentures in amounts
     corresponding with the Subscription  Amount set forth opposite each Buyer's
     name on  Schedule I hereto.  Upon  execution  hereof by a Buyer,  the Buyer
     shall wire transfer the Subscription  Amount set forth opposite his name on
     Schedule I in same-day funds or a check payable to "Butler Gonzalez LLP, as
     Escrow Agent for  Productivity  Technologies  Corporation  /Cornell Capital
     Partners,  LP", which Subscription  Amount shall be held in escrow pursuant
     to the terms of the Escrow Agreement (as hereinafter defined) and disbursed
     in  accordance  therewith.  Notwithstanding  the  foregoing,  a  Buyer  may
     withdraw his  Subscription  Amount and terminate  this Agreement as to such
     Buyer at any time  after the  execution  hereof  and prior to  Closing  (as
     hereinafter defined).

          (b) Closing  Date.  The First  Closing of the purchase and sale of the
     Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time
     on the fifth (5th)  business  day  following  the date  hereof,  subject to
     notification  of  satisfaction  of the  conditions to the First Closing set
     forth  herein  and in  Sections  6 and 7 below  (or such  later  date as is
     mutually  agreed to by the Company and the  Buyer(s))  (the "First  Closing
     Date"),  the Second  Closing of the  purchase  and sale of the  Convertible
     Debentures  shall  take place at 10:00 a.m.  Eastern  Standard  Time on the
     fifth (5th)  business day following the date a Form 211, in proper form, is
     filed with the National Association of Securities Dealers, Inc., subject to
     notification  of  satisfaction  of the conditions to the Second Closing set
     forth  herein in  Sections 6 and 7 below (or such later date as is mutually
     agreed to by the Buyer(s)) (the "Second Closing Date") the Third Closing of
     the purchase  and sale of the  Convertible  Debentures  shall take place at
     10:00 a.m.  Eastern Standard Time on the fifth (5th) business day following
     the date the  Registration  Statement  is filed  with the SEC,  subject  to
     notification  of  satisfaction  of the  conditions to the Third Closing set
     forth  herein  and in  Sections  6 and 7 below  (or such  later  date as is
     mutually  agreed to by the Company and the  Buyer(s))  (the "Third  Closing
     Date") (collectively  referred to a the "Closing Dates"). The Closing shall
     occur on the  respective  Closing Dates at the offices of Butler  Gonzalez,
     LLP, 1416 Morris Avenue, Suite 207, Union, NJ 07083 (or such other place as
     is mutually agreed to by the Company and the Buyer(s)).
<PAGE>

          (c) Escrow  Arrangements;  Form of Payment.  Upon execution  hereof by
     Buyer(s) and pending the Closings,  the  aggregate  proceeds of the sale of
     the Convertible  Debentures to Buyer(s)  pursuant hereto shall be deposited
     in a  non-interest  bearing  escrow  account with Butler  Gonzalez  LLP, as
     escrow  agent  (the  "Escrow  Agent"),  pursuant  to the terms of an escrow
     agreement  between the  Company,  the  Buyer(s) and the Escrow Agent in the
     form attached hereto as Exhibit B (the "Escrow Agreement").  Subject to the
     satisfaction of the terms and conditions of this Agreement,  on the Closing
     Dates, (i) the Escrow Agent shall deliver to the Company in accordance with
     the  terms  of  the  Escrow  Agreement  such  aggregate  proceeds  for  the
     Convertible  Debentures to be issued and sold to such  Buyer(s),  minus the
     structuring fees of Ten Thousand Dollars  ($10,000) to be paid directly out
     of the gross  proceeds of the First Closing and the retainer of Kirkpatrick
     & Lockhart LLP of Twelve Thousand Five Hundred Dollars ($12,500) to be paid
     out of the gross  proceeds of the First  Closing and Twelve  Thousand  Five
     Hundred  Dollars  ($12,500) shall be paid directly from the proceeds of the
     Second   Closing  to  Kirkpatrick  &  Lockhart  LLP  by  wire  transfer  of
     immediately  available funds in accordance with the Company's  written wire
     instructions, and (ii) the Company shall deliver to each Buyer, Convertible
     Debentures which such Buyer(s) is purchasing in amounts indicated  opposite
     such Buyer's name on Schedule I, duly executed on behalf of the Company.

     2. BUYER'S REPRESENTATIONS AND WARRANTIES.

     Each Buyer represents and warrants, severally and not jointly, that:

          (a)  Investment  Purpose.  Each  Buyer is  acquiring  the  Convertible
     Debentures and, upon conversion of Convertible  Debentures,  the Buyer will
     acquire  the  Conversion  Shares  then  issuable,  for its own  account for
     investment  only and not with a view  towards,  or for resale in connection
     with, the public sale or  distribution  thereof,  except  pursuant to sales
     registered  or  exempted  under the 1933 Act;  provided,  however,  that by
     making the representations herein, such Buyer reserves the right to dispose
     of the Conversion  Shares at any time in accordance  with or pursuant to an
     effective  registration  statement  covering such  Conversion  Shares or an
     available exemption under the 1933 Act.

          (b) Accredited Investor Status. Each Buyer is an "Accredited Investor"
     as that term is defined in Rule 501(a)(3) of Regulation D.

          (c)  Reliance  on  Exemptions.   Each  Buyer   understands   that  the
     Convertible  Debentures  are being  offered  and sold to it in  reliance on
     specific  exemptions  from the  registration  requirements of United States
     federal and state  securities  laws and that the Company is relying in part
     upon the truth and  accuracy  of, and such  Buyer's  compliance  with,  the
     representations, warranties, agreements, acknowledgments and understandings
     of such Buyer set forth herein in order to determine  the  availability  of
     such  exemptions  and  the  eligibility  of  such  Buyer  to  acquire  such
     securities.

          (d)  Information.  Each  Buyer  and its  advisors  (and  his  or,  its
     counsel),  if any, have been furnished  with all materials  relating to the
     business,  finances and operations of the Company and information he deemed
     material to making an informed  investment  decision regarding his purchase
     of the Convertible  Debentures and the Conversion  Shares,  which have been
     requested by such Buyer.  Each Buyer and its  advisors,  if any,  have been
     afforded  the

<PAGE>

     opportunity  to ask  questions of the Company and its  management.  Neither
     such inquiries nor any other due diligence investigations conducted by such
     Buyer or its advisors,  if any, or its representatives  shall modify, amend
     or affect such Buyer's right to rely on the Company's  representations  and
     warranties  contained in Section 3 below.  Each Buyer  understands that its
     investment in the Convertible Debentures and the Conversion Shares involves
     a high degree of risk.  Each Buyer is in a position  regarding the Company,
     which, based upon employment,  family  relationship or economic  bargaining
     power,  enabled  and  enables  such  Buyer to obtain  information  from the
     Company in order to evaluate the merits and risks of this investment.  Each
     Buyer  has  sought  such  accounting,  legal  and  tax  advice,  as it  has
     considered  necessary to make an informed  investment decision with respect
     to its acquisition of the Convertible Debentures and the Conversion Shares.

          (e) No  Governmental  Review.  Each Buyer  understands  that no United
     States  federal or state  agency or any other  government  or  governmental
     agency  has  passed on or made any  recommendation  or  endorsement  of the
     Convertible  Debentures  or  the  Conversion  Shares,  or the  fairness  or
     suitability  of  the  investment  in  the  Convertible  Debentures  or  the
     Conversion  Shares,  nor have such authorities  passed upon or endorsed the
     merits of the  offering of the  Convertible  Debentures  or the  Conversion
     Shares.

          (f) Transfer or Resale. Each Buyer understands that except as provided
     in  the  Investor  Registration  Rights  Agreement:   (i)  the  Convertible
     Debentures have not been and are not being registered under the 1933 Act or
     any state securities laws, and may not be offered for sale, sold,  assigned
     or transferred unless (A) subsequently  registered thereunder,  or (B) such
     Buyer  shall have  delivered  to the  Company an opinion of  counsel,  in a
     generally  acceptable  form, to the effect that such securities to be sold,
     assigned or transferred may be sold, assigned or transferred pursuant to an
     exemption  from  such  registration  requirements;  (ii)  any  sale of such
     securities  made in reliance on Rule 144 under the 1933 Act (or a successor
     rule thereto) ("Rule 144") may be made only in accordance with the terms of
     Rule 144 and  further,  if Rule 144 is not  applicable,  any resale of such
     securities  under  circumstances in which the seller (or the person through
     whom the sale is made) may be deemed to be an underwriter  (as that term is
     defined in the 1933 Act) may require  compliance  with some other exemption
     under the 1933 Act or the rules and regulations of the SEC thereunder;  and
     (iii)  neither the Company nor any other person is under any  obligation to
     register such securities under the 1933 Act or any state securities laws or
     to comply with the terms and  conditions of any exemption  thereunder.  The
     Company reserves the right to place stop transfer  instructions against the
     shares and certificates for the Conversion Shares.

          (g) Legends.  Each Buyer  understands  that the  certificates or other
     instruments  representing the Convertible  Debentures and or the Conversion
     Shares shall bear a restrictive  legend in substantially the following form
     (and a stop  transfer  order may be placed  against  transfer of such stock
     certificates):

          THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
          STATE  SECURITIES  LAWS. THE SECURITIES  HAVE BEEN ACQUIRED SOLELY FOR
          INVESTMENT  PURPOSES AND

<PAGE>

          NOT WITH A VIEW TOWARD  RESALE AND MAY NOT BE OFFERED FOR SALE,  SOLD,
          TRANSFERRED  OR ASSIGNED IN THE ABSENCE OF AN  EFFECTIVE  REGISTRATION
          STATEMENT  FOR THE  SECURITIES  UNDER THE  SECURITIES  ACT OF 1933, AS
          AMENDED,  OR  APPLICABLE  STATE  SECURITIES  LAWS,  OR AN  OPINION  OF
          COUNSEL,  IN A GENERALLY  ACCEPTABLE  FORM,  THAT  REGISTRATION IS NOT
          REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

     The legend set forth above shall be removed and the Company  within two (2)
     business days shall issue a  certificate  without such legend to the holder
     of the  Conversion  Shares upon which it is stamped,  if, unless  otherwise
     required  by  state   securities  laws,  (i)  in  connection  with  a  sale
     transaction,  provided the Conversion  Shares are registered under the 1933
     Act or  (ii) in  connection  with a sale  transaction,  after  such  holder
     provides the Company with an opinion of counsel,  which opinion shall be in
     form,  substance and scope  customary for opinions of counsel in comparable
     transactions,  to the effect that a public sale,  assignment or transfer of
     the Conversion Shares may be made without registration under the 1933 Act.

          (h)  Authorization,  Enforcement.  This  Agreement  has been  duly and
     validly authorized, executed and delivered on behalf of such Buyer and is a
     valid and binding  agreement of such Buyer  enforceable in accordance  with
     its  terms,  except  as  such  enforceability  may be  limited  by  general
     principles of equity or applicable bankruptcy, insolvency,  reorganization,
     moratorium,  liquidation  and other  similar laws relating to, or affecting
     generally, the enforcement of applicable creditors' rights and remedies.

          (i)  Receipt  of  Documents.  Each  Buyer and his or its  counsel  has
     received  and  read  in  their  entirety:   (i)  this  Agreement  and  each
     representation,  warranty  and  covenant  set forth  herein,  the  Security
     Agreement,   the  Investor   Registration  Rights  Agreement,   the  Escrow
     Agreement,  and the Irrevocable  transfer Agent Instructions;  (ii) all due
     diligence  and other  information  necessary  to verify  the  accuracy  and
     completeness of such representations,  warranties and covenants;  (iii) the
     Company's  Form 10-K for the  fiscal  year ended  June 30,  2003;  (iv) the
     Company's  Form 10-Q for the fiscal  quarter  ended  March 31, 2004 and (v)
     answers to all questions each Buyer  submitted to the Company  regarding an
     investment  in the  Company;  and each Buyer has relied on the  information
     contained   therein  and  has  not  been  furnished  any  other  documents,
     literature, memorandum or prospectus.

          (j) Due Formation of Corporate and Other Buyers.  If the Buyer(s) is a
     corporation,  trust,  partnership or other entity that is not an individual
     person,  it has been formed and validly  exists and has not been  organized
     for the specific  purpose of purchasing the  Convertible  Debentures and is
     not prohibited from doing so.

          (k) No Legal Advice From the Company. Each Buyer acknowledges, that it
     had  the  opportunity  to  review  this  Agreement  and  the   transactions
     contemplated  by this  Agreement  with  his or its own  legal  counsel  and
     investment  and tax advisors.  Each Buyer is relying solely on such counsel
     and advisors and not on any statements or representations of the Company or
     any of its  representatives  or agents for legal, tax or investment  advice
     with respect

<PAGE>

     to this investment,  the transactions contemplated by this Agreement or the
     securities laws of any jurisdiction.

     3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company  represents and warrants to each of the Buyers that,  except as
set forth in the SEC Documents (as defined herein):

          (a) Organization and  Qualification.  The Company and its subsidiaries
     are corporations duly organized and validly existing in good standing under
     the laws of the jurisdiction in which they are  incorporated,  and have the
     requisite  corporate  power to own their  properties  and to carry on their
     business as now being  conducted.  Each of the Company and its subsidiaries
     is duly  qualified as a foreign  corporation  to do business and is in good
     standing  in  every  jurisdiction  in  which  the  nature  of the  business
     conducted by it makes such  qualification  necessary,  except to the extent
     that the failure to be so qualified or be in good standing would not have a
     material  adverse  effect on the  Company and its  subsidiaries  taken as a
     whole.

          (b) Authorization, Enforcement, Compliance with Other Instruments. (i)
     The Company has the requisite  corporate  power and authority to enter into
     and  perform  this  Agreement,   the  Security   Agreement,   the  Investor
     Registration  Rights  Agreement,  the  Escrow  Agreement,  the  Irrevocable
     Transfer Agent Instructions,  and any related agreements,  and to issue the
     Convertible  Debentures  and the Conversion  Shares in accordance  with the
     terms  hereof  and  thereof,  (ii)  the  execution  and  delivery  of  this
     Agreement,   the  Security  Agreement,  the  Investor  Registration  Rights
     Agreement,   the  Escrow   Agreement,   the   Irrevocable   Transfer  Agent
     Instructions (as defined herein) and any related  agreements by the Company
     and the  consummation  by it of the  transactions  contemplated  hereby and
     thereby,  including,  without  limitation,  the issuance of the Convertible
     Debentures the Conversion  Shares and the  reservation for issuance and the
     issuance of the  Conversion  Shares  issuable  upon  conversion or exercise
     thereof,  have been duly authorized by the Company's Board of Directors and
     no further consent or authorization  is required by the Company,  its Board
     of  Directors  or its  stockholders,  (iii) this  Agreement,  the  Security
     Agreement,   the  Investor   Registration  Rights  Agreement,   the  Escrow
     Agreement,  the  Irrevocable  Transfer Agent  Instructions  and any related
     agreements have been duly executed and delivered by the Company,  (iv) this
     Agreement,   the  Security  Agreement,  the  Investor  Registration  Rights
     Agreement,   the  Escrow   Agreement,   the   Irrevocable   Transfer  Agent
     Instructions  and any related  agreements  constitute the valid and binding
     obligations  of the Company  enforceable  against the Company in accordance
     with their terms,  except as such  enforceability may be limited by general
     principles of equity or applicable bankruptcy, insolvency,  reorganization,
     moratorium,   liquidation   or  similar  laws  relating  to,  or  affecting
     generally,   the  enforcement  of  creditors'  rights  and  remedies.   The
     authorized  officer of the Company  executing this Agreement,  the Security
     Agreement,   the  Investor   Registration  Rights  Agreement,   the  Escrow
     Agreement,  the  Irrevocable  Transfer Agent  Instructions  and any related
     agreements  knows of no reason why the Company cannot file the registration
     statement as required under the Investor  Registration  Rights Agreement or
     perform any of the Company's other obligations under such documents.

          (c)  Capitalization.  The  authorized  capital  stock  of the  Company
     consists of 20,000,000  shares of Common Stock,  par value $0.001 per share
     and  1,000,000  shares of

<PAGE>

     Preferred  Stock. As of the May 19, 2004, the Company had 2,475,000  shares
     of Common Stock and no  outstanding  shares of  Preferred  Stock issued and
     outstanding.  All of such  outstanding  shares have been validly issued and
     are fully paid and nonassessable.  Except as disclosed in the SEC Documents
     (as  defined in Section  3(f)),  no shares of Common  Stock are  subject to
     preemptive  rights or any other similar rights or any liens or encumbrances
     suffered  or  permitted  by the  Company.  Except as  disclosed  in the SEC
     Documents,  as of the date of this Agreement,  (i) there are no outstanding
     options,  warrants,  scrip, rights to subscribe to, calls or commitments of
     any character  whatsoever  relating to, or securities or rights convertible
     into,   any  shares  of  capital  stock  of  the  Company  or  any  of  its
     subsidiaries, or contracts, commitments,  understandings or arrangements by
     which the  Company or any of its  subsidiaries  is or may  become  bound to
     issue  additional  shares of  capital  stock of the  Company  or any of its
     subsidiaries or options,  warrants, scrip, rights to subscribe to, calls or
     commitments  of any  character  whatsoever  relating to, or  securities  or
     rights  convertible into, any shares of capital stock of the Company or any
     of its  subsidiaries,  (ii) there are no  outstanding  debt  securities and
     (iii) there are no  agreements or  arrangements  under which the Company or
     any of its  subsidiaries  is obligated to register the sale of any of their
     securities under the 1933 Act (except  pursuant to the Registration  Rights
     Agreement)  and (iv) there are no outstanding  registration  statements and
     there  are no  outstanding  comment  letters  from  the  SEC  or any  other
     regulatory  agency.  There  are no  securities  or  instruments  containing
     anti-dilution or similar  provisions that will be triggered by the issuance
     of the Convertible  Debentures as described in this Agreement.  The Company
     has  furnished  to the  Buyer  true and  correct  copies  of the  Company's
     Certificate  of  Incorporation,  as  amended  and as in  effect on the date
     hereof (the "Certificate of Incorporation"),  and the Company's By-laws, as
     in  effect  on the  date  hereof  (the  "By-laws"),  and the  terms  of all
     securities  convertible  into  or  exercisable  for  Common  Stock  and the
     material  rights of the holders thereof in respect thereto other than stock
     options issued to employees and consultants.

          (d)  Issuance  of  Securities.  The  Convertible  Debentures  are duly
     authorized and, upon issuance in accordance with the terms hereof, shall be
     duly issued,  fully paid and nonassessable,  are free from all taxes, liens
     and  charges  with  respect to the issue  thereof.  The  Conversion  Shares
     issuable  upon  conversion  of the  Convertible  Debentures  have been duly
     authorized  and  reserved  for  issuance.  Upon  conversion  or exercise in
     accordance  with the Convertible  Debentures the Conversion  Shares will be
     duly issued, fully paid and nonassessable.

          (e) No  Conflicts.  Except  as  disclosed  in the SEC  Documents,  the
     execution,  delivery  and  performance  of  this  Agreement,  the  Security
     Agreement,   the  Investors  Registration  Rights  Agreement,   the  Escrow
     Agreement and the  Irrevocable  Transfer Agent  Instructions by the Company
     and the consummation by the Company of the transactions contemplated hereby
     will not (i) result in a violation of the Certificate of Incorporation, any
     certificate of designations of any outstanding series of preferred stock of
     the Company or the By-laws or (ii)  conflict  with or  constitute a default
     (or an event  which  with  notice or lapse of time or both  would  become a
     default)  under,  or give to others any rights of  termination,  amendment,
     acceleration or cancellation of, any agreement,  indenture or instrument to
     which the  Company or any of its  subsidiaries  is a party,  or result in a
     violation  of  any  law,  rule,  regulation,   order,  judgment  or  decree
     (including  federal and state securities laws and regulations and the rules
     and  regulations  of the Pink  Sheets on which the Common  Stock is quoted)
     applicable  to the  Company  or any of its  subsidiaries  or by  which  any
     property  or asset of the  Company or any of its  subsidiaries  is bound or
     affected. Except as disclosed in the SEC Documents, neither the Company nor
     its

<PAGE>

     subsidiaries  is in  violation  of any  term  of or in  default  under  its
     Certificate of Incorporation or By-laws or their organizational  charter or
     by-laws,  respectively,  or any  material  contract,  agreement,  mortgage,
     indebtedness,  indenture,  instrument,  judgment,  decree  or  order or any
     statute,  rule or regulation applicable to the Company or its subsidiaries.
     The business of the Company and its  subsidiaries  is not being  conducted,
     and shall not be conducted in violation of any material law, ordinance,  or
     regulation of any governmental entity. Except as specifically  contemplated
     by this  Agreement  and as required  under the 1933 Act and any  applicable
     state  securities  laws, the Company is not required to obtain any consent,
     authorization  or order of, or make any filing or  registration  with,  any
     court or governmental agency in order for it to execute, deliver or perform
     any of its  obligations  under or  contemplated  by this  Agreement  or the
     Registration  Rights  Agreement  in  accordance  with the  terms  hereof or
     thereof.   Except  as  disclosed  in  the  SEC  Documents,   all  consents,
     authorizations,  orders,  filings  and  registrations  which the Company is
     required to obtain pursuant to the preceding sentence have been obtained or
     effected on or prior to the date hereof.  The Company and its  subsidiaries
     are unaware of any facts or  circumstance,  which might give rise to any of
     the foregoing.

          (f) SEC Documents:  Financial  Statements.  Since January 1, 2003, the
     Company  has filed all  reports,  schedules,  forms,  statements  and other
     documents  required to be filed by it with the SEC under of the  Securities
     Exchange  Act of 1934,  as amended  (the "1934 Act") (all of the  foregoing
     filed  prior to the date  hereof or amended  after the date  hereof and all
     exhibits  included therein and financial  statements and schedules  thereto
     and documents incorporated by reference therein, being hereinafter referred
     to as the "SEC  Documents").  The  Company has  delivered  to the Buyers or
     their  representatives,  or made  available  through  the SEC's  website at
     http://www.sec.gov.,  true and complete copies of the SEC Documents.  As of
     their respective  dates, the financial  statements of the Company disclosed
     in the SEC Documents (the  "Financial  Statements")  complied as to form in
     all material  respects  with  applicable  accounting  requirements  and the
     published  rules and  regulations  of the SEC with  respect  thereto.  Such
     financial  statements  have been  prepared  in  accordance  with  generally
     accepted accounting  principles,  consistently applied,  during the periods
     involved  (except  (i) as may be  otherwise  indicated  in  such  Financial
     Statements or the notes thereto,  or (ii) in the case of unaudited  interim
     statements, to the extent they may exclude footnotes or may be condensed or
     summary  statements)  and,  fairly  present in all  material  respects  the
     financial  position of the Company as of the dates  thereof and the results
     of its  operations and cash flows for the periods then ended  (subject,  in
     the case of unaudited statements, to normal year-end audit adjustments). No
     other  information  provided  by or on behalf of the  Company  to the Buyer
     which is not included in the SEC Documents,  including, without limitation,
     information referred to in this Agreement, contains any untrue statement of
     a material fact or omits to state any material  fact  necessary in order to
     make the statements  therein, in the light of the circumstances under which
     they were made, not misleading.

          (g) 10(b)-5. The SEC Documents do not include any untrue statements of
     material  fact,  nor do they omit to state any material fact required to be
     stated  therein  necessary  to make the  statements  made,  in light of the
     circumstances under which they were made, not misleading.

          (h) Absence of Litigation. Except as disclosed in the SEC Documents or
     due diligence materials,  there is no action, suit, proceeding,  inquiry or
     investigation  before or by any

<PAGE>

     court,  public board,  government agency,  self-regulatory  organization or
     body pending  against or affecting the Company,  the Common Stock or any of
     the Company's  subsidiaries,  wherein an  unfavorable  decision,  ruling or
     finding  would  (i) have a  material  adverse  effect  on the  transactions
     contemplated  hereby (ii) adversely  affect the validity or  enforceability
     of, or the  authority or ability of the Company to perform its  obligations
     under, this Agreement or any of the documents contemplated herein, or (iii)
     except as expressly disclosed in the SEC Documents, have a material adverse
     effect on the  business,  operations,  properties,  financial  condition or
     results of operations of the Company and its subsidiaries taken as a whole.

          (i)  Acknowledgment  Regarding  Buyer's  Purchase  of the  Convertible
     Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
     solely in the  capacity of an arm's length  purchaser  with respect to this
     Agreement and the  transactions  contemplated  hereby.  The Company further
     acknowledges  that the  Buyer(s)  is not acting as a  financial  advisor or
     fiduciary of the Company (or in any similar  capacity) with respect to this
     Agreement and the transactions  contemplated hereby and any advice given by
     the  Buyer(s)  or any of their  respective  representatives  or  agents  in
     connection with this Agreement and the transactions  contemplated hereby is
     merely incidental to such Buyer's purchase of the Convertible Debentures or
     the Conversion Shares. The Company further represents to the Buyer that the
     Company's  decision to enter into this  Agreement  has been based solely on
     the independent evaluation by the Company and its representatives.

          (j) No  General  Solicitation.  Neither  the  Company,  nor any of its
     affiliates,  nor any person acting on its or their  behalf,  has engaged in
     any form of general solicitation or general advertising (within the meaning
     of Regulation D under the 1933 Act) in connection with the offer or sale of
     the Convertible Debentures or the Conversion Shares.

          (k) No  Integrated  Offering.  Neither  the  Company,  nor  any of its
     affiliates,  nor any person acting on its or their behalf has,  directly or
     indirectly,  made any  offers or sales of any  security  or  solicited  any
     offers  to  buy  any  security,  under  circumstances  that  would  require
     registration of the Convertible  Debentures or the Conversion  Shares under
     the 1933 Act or cause this  offering of the  Convertible  Debentures or the
     Conversion  Shares to be integrated with prior offerings by the Company for
     purposes of the 1933 Act.

          (l)   Employee   Relations.   Neither  the  Company  nor  any  of  its
     subsidiaries  is involved in any labor dispute nor, to the knowledge of the
     Company or any of its subsidiaries, is any such dispute threatened. None of
     the Company's or its subsidiaries' employees is a member of a union and the
     Company  and its  subsidiaries  believe  that  their  relations  with their
     employees are good.

          (m)  Intellectual  Property  Rights.  Except as  disclosed  in the due
     diligence  materials,  the  Company  and its  subsidiaries  own or  possess
     adequate  rights or licenses to use all  trademarks,  trade names,  service
     marks, service mark registrations,  service names, patents,  patent rights,
     copyrights,  inventions, licenses, approvals,  governmental authorizations,
     trade secrets and rights necessary to conduct their  respective  businesses
     as now  conducted.  The  Company  and  its  subsidiaries  do not  have  any
     knowledge  of any  infringement  by the  Company  or  its  subsidiaries  of
     trademark,   trade  name  rights,  patents,   patent  rights,   copyrights,
     inventions,   licenses,   service  names,   service  marks,   service  mark
     registrations,  trade secret or other similar

<PAGE>

     rights of others,  and, to the  knowledge of the Company there is no claim,
     action or  proceeding  being made or brought  against,  or to the Company's
     knowledge,  being  threatened  against,  the  Company  or its  subsidiaries
     regarding  trademark,   trade  name,  patents,  patent  rights,  invention,
     copyright,   license,   service   names,   service   marks,   service  mark
     registrations,  trade secret or other infringement; and the Company and its
     subsidiaries  are  unaware of any facts or  circumstances  which might give
     rise to any of the foregoing.

          (n)  Environmental  Laws. The Company and its  subsidiaries are (i) in
     compliance with any and all applicable  foreign,  federal,  state and local
     laws and regulations relating to the protection of human health and safety,
     the environment or hazardous or toxic  substances or wastes,  pollutants or
     contaminants  ("Environmental  Laws"),  (ii)  have  received  all  permits,
     licenses or other approvals required of them under applicable Environmental
     Laws to conduct  their  respective  businesses  and (iii) are in compliance
     with all terms and conditions of any such permit, license or approval.

          (o) Title.  Any real property and  facilities  held under lease by the
     Company and its subsidiaries  are held by them under valid,  subsisting and
     enforceable  leases with such  exceptions  as are not  material  and do not
     interfere  with the use made and  proposed to be made of such  property and
     buildings by the Company and its subsidiaries.

          (p) Insurance. The Company and each of its subsidiaries are insured by
     insurers of  recognized  financial  responsibility  against such losses and
     risks and in such  amounts as  management  of the  Company  believes  to be
     prudent  and  customary  in the  businesses  in which the  Company  and its
     subsidiaries  are engaged.  Neither the Company nor any such subsidiary has
     been refused any insurance  coverage  sought or applied for and neither the
     Company nor any such  subsidiary has any reason to believe that it will not
     be able to renew its existing  insurance coverage as and when such coverage
     expires or to obtain  similar  coverage  from  similar  insurers  as may be
     necessary to continue its business at a cost that would not  materially and
     adversely  affect the condition,  financial or otherwise,  or the earnings,
     business or  operations  of the Company  and its  subsidiaries,  taken as a
     whole.

          (q) Regulatory Permits.  The Company and its subsidiaries  possess all
     material certificates, authorizations and permits issued by the appropriate
     federal, state or foreign regulatory authorities necessary to conduct their
     respective businesses,  and neither the Company nor any such subsidiary has
     received  any  notice  of   proceedings   relating  to  the  revocation  or
     modification of any such certificate, authorization or permit.

          (r)  Internal  Accounting  Controls.  The  Company  and  each  of  its
     subsidiaries  maintain a system of internal  accounting controls sufficient
     to provide  reasonable  assurance  that (i)  transactions  are  executed in
     accordance  with  management's  general or  specific  authorizations,  (ii)
     transactions  are recorded as necessary to permit  preparation of financial
     statements in conformity with generally accepted accounting  principles and
     to maintain asset accountability, and (iii) the recorded amounts for assets
     is  compared  with  the  existing   assets  at  reasonable   intervals  and
     appropriate action is taken with respect to any differences.

          (s) No Material Adverse Breaches,  etc. Except as set forth in the SEC
     Documents,  neither the Company nor any of its  subsidiaries  is subject to
     any charter, corporate

<PAGE>

     or  other  legal  restriction,  or any  judgment,  decree,  order,  rule or
     regulation  which  in the  judgment  of the  Company's  officers  has or is
     expected in the future to have a material  adverse  effect on the business,
     properties,  operations,  financial  condition,  results of  operations  or
     prospects  of the Company or its  subsidiaries.  Except as set forth in the
     SEC Documents, neither the Company nor any of its subsidiaries is in breach
     of any contract or agreement which breach, in the judgment of the Company's
     officers,  has or is  expected  to have a  material  adverse  effect on the
     business,   properties,   operations,   financial  condition,   results  of
     operations or prospects of the Company or its subsidiaries.

          (t) Tax Status. Except as set forth in the SEC Documents,  the Company
     and each of its  subsidiaries  has made and  filed  all  federal  and state
     income and all other tax returns,  reports and declarations required by any
     jurisdiction to which it is subject and (unless and only to the extent that
     the  Company  and  each of its  subsidiaries  has set  aside  on its  books
     provisions reasonably adequate for the payment of all unpaid and unreported
     taxes) has paid all taxes and other  governmental  assessments  and charges
     that are material in amount, shown or determined to be due on such returns,
     reports and  declarations,  except those being  contested in good faith and
     has set aside on its books provision reasonably adequate for the payment of
     all taxes for  periods  subsequent  to the  periods to which such  returns,
     reports or  declarations  apply.  There are no unpaid taxes in any material
     amount claimed to be due by the taxing authority of any  jurisdiction,  and
     the officers of the Company know of no basis for any such claim.

          (u) Certain  Transactions.  Except as set forth in the SEC  Documents,
     and except for arm's  length  transactions  pursuant  to which the  Company
     makes  payments  in the  ordinary  course of  business  upon  terms no less
     favorable  than the Company  could obtain from third parties and other than
     the grant of stock  options  disclosed  in the SEC  Documents,  none of the
     officers,  directors,  or  employees of the Company is presently a party to
     any  transaction  with the Company  (other than for services as  employees,
     officers  and  directors),  including  any  contract,  agreement  or  other
     arrangement  providing for the  furnishing of services to or by,  providing
     for rental of real or personal property to or from, or otherwise  requiring
     payments  to or from any  officer,  director  or such  employee  or, to the
     knowledge  of the Company,  any  corporation,  partnership,  trust or other
     entity  in  which  any  officer,  director,  or  any  such  employee  has a
     substantial interest or is an officer, director, trustee or partner.

          (v) Fees and Rights of First Refusal.  The Company is not obligated to
     offer the securities offered hereunder on a right of first refusal basis or
     otherwise to any third parties  including,  but not limited to,  current or
     former shareholders of the Company, underwriters,  brokers, agents or other
     third parties.

          (w) No  Bankruptcy  Intent.  The Board of  Directors  has no intent to
     initiate the filing of a  bankruptcy  petition by the Company or any of its
     subsidiaries,  and is not aware of any such intent by any of the  Company's
     or its subsidiaries creditors.

          (x) No Denial of  Listing  on  Over-the-Counter  Bulletin  Board.  The
     National  Association  of  Securities  Dealers,  Inc.  has  not  denied  or
     prohibited  the Company or any  registered  market  maker from  listing its
     common stock on the Over-the-Counter Bulletin Board.
<PAGE>

     4. COVENANTS.

          (a) Best  Efforts.  Each party  shall use its best  efforts  timely to
     satisfy  each  of the  conditions  to be  satisfied  by it as  provided  in
     Sections 6 and 7 of this Agreement.

          (b) Form D. The  Company  agrees to file a Form D with  respect to the
     Conversion  Shares as  required  under  Regulation  D and to provide a copy
     thereof to each Buyer promptly after such filing.  The Company shall, on or
     before the Closing Date,  take such action as the Company shall  reasonably
     determine  is  necessary  to qualify the  Conversion  Shares,  or obtain an
     exemption for the  Conversion  Shares for sale to the Buyers at the Closing
     pursuant to this Agreement under  applicable  securities or "Blue Sky" laws
     of the states of the United States,  and shall provide evidence of any such
     action so taken to the Buyers on or prior to the Closing Date.

          (c)  Reporting  Status.  Until the earlier of (i) the date as of which
     the  Buyer(s) may sell all of the  Conversion  Shares  without  restriction
     pursuant  to Rule  144(k)  promulgated  under  the 1933  Act (or  successor
     thereto),  or (ii) the date on which (A) the  Buyer(s)  shall have sold all
     the  Conversion  Shares  and (B)  none of the  Convertible  Debentures  are
     outstanding (the "Registration Period"), the Company shall file in a timely
     manner all reports  required to be filed with the SEC  pursuant to the 1934
     Act and the  regulations of the SEC  thereunder,  and the Company shall not
     terminate  its status as an issuer  required to file reports under the 1934
     Act even if the 1934 Act or the  rules  and  regulations  thereunder  would
     otherwise permit such termination.

          (d) Use of Proceeds.  The Company will use the proceeds  from the sale
     of the  Convertible  Debentures for general  corporate and working  capital
     purposes.

          (e)  Reservation  of  Shares.   The  Company  shall  take  all  action
     reasonably necessary to at all times have authorized,  and reserved for the
     purpose  of  issuance,  such  number of shares of Common  Stock as shall be
     necessary to effect the issuance of the Conversion  Shares.  If at any time
     the Company  does not have  available  such shares of Common Stock as shall
     from time to time be  sufficient  to effect  the  conversion  of all of the
     Conversion  Shares of the Company shall call and hold a special  meeting of
     the shareholders  within sixty (60) days of such  occurrence,  for the sole
     purpose  of  increasing  the  number of shares  authorized.  The  Company's
     management  shall  recommend  to the  shareholders  to  vote  in  favor  of
     increasing  the  number of shares of Common  Stock  authorized.  Management
     shall  also vote all of its  shares in favor of  increasing  the  number of
     authorized shares of Common Stock.

          (f)  Listings  or  Quotation.  The Company  shall use best  efforts to
     promptly secure the listing or quotation of the Conversion Shares upon each
     national  securities  exchange,  automated quotation system or The National
     Association of Securities  Dealers Inc.'s  Over-The-Counter  Bulletin Board
     ("OTCBB") or other  market,  if any,  upon which shares of Common Stock are
     then listed or quoted  (subject to official  notice of issuance)  and shall
     use its best  efforts to  maintain,  so long as any other  shares of Common
     Stock shall be so listed,  such listing of all Conversion  Shares from time
     to time  issuable  under the terms of this  Agreement.  The  Company  shall
     maintain the Common Stock's authorization for quotation on the OTCBB.
<PAGE>

          (g) Fees and Expenses.  Each of the Company and the Buyer(s) shall pay
     all  costs and  expenses  incurred  by such  party in  connection  with the
     negotiation,  investigation,  preparation,  execution  and delivery of this
     Agreement,   the  Escrow  Agreement,   the  Investor   Registration  Rights
     Agreement,  the  Security  Agreement  and the  Irrevocable  Transfer  Agent
     Instructions.  The  Buyer(s)  shall  be  entitled  to a ten  percent  (10%)
     discount on the Purchase Price.

          (h) A structuring fee of Ten Thousand Dollars  ($10,000) shall be paid
     directly  from the  proceeds  of the  First  Closing  and the  retainer  of
     Kirkpatrick & Lockhart LLP of which Twelve  Thousand  Five Hundred  Dollars
     ($12,500) shall be paid for by the Company directly from the gross proceeds
     of the First  Closing  held in escrow  and  Twelve  Thousand  Five  Hundred
     Dollars shall be paid for by the Company,  directly from the gross proceeds
     of the Second Closing.

          (i) Corporate Existence.  So long as any of the Convertible Debentures
     remain outstanding, the Company shall not directly or indirectly consummate
     any   merger,   reorganization,    restructuring,   reverse   stock   split
     consolidation,  sale of all or substantially all of the Company's assets or
     any similar transaction or related transactions (each such transaction,  an
     "Organizational   Change")   unless,   prior   to   the   consummation   an
     Organizational  Change,  the Company  obtains  the written  consent of each
     Buyer. In any such case, the Company will make  appropriate  provision with
     respect to such holders' rights and interests to insure that the provisions
     of this Section  4(h) will  thereafter  be  applicable  to the  Convertible
     Debentures.

          (j)  Transactions   With  Affiliates.   So  long  as  any  Convertible
     Debentures are outstanding,  the Company shall not, and shall cause each of
     its subsidiaries not to, enter into, amend, modify or supplement, or permit
     any  subsidiary to enter into,  amend,  modify or supplement any agreement,
     transaction, commitment, or arrangement with any of its or any subsidiary's
     officers,  directors,  person who were  officers or  directors  at any time
     during the previous two (2) years,  stockholders  who beneficially own five
     percent (5%) or more of the Common Stock,  or Affiliates (as defined below)
     or with any individual related by blood,  marriage, or adoption to any such
     individual or with any entity in which any such entity or individual owns a
     five percent (5%) or more  beneficial  interest  (each a "Related  Party"),
     except for (a) customary  employment  arrangements  and benefit programs on
     reasonable  terms,  (b) any investment in an Affiliate of the Company,  (c)
     any agreement,  transaction,  commitment,  or arrangement on an arms-length
     basis  on  terms  no less  favorable  than  terms  which  would  have  been
     obtainable  from a person other than such Related Party,  (d) any agreement
     transaction,  commitment, or arrangement which is approved by a majority of
     the  disinterested  directors of the  Company,  for  purposes  hereof,  any
     director  who is also an officer of the  Company or any  subsidiary  of the
     Company  shall not be a  disinterested  director  with  respect to any such
     agreement,  transaction,   commitment,  or  arrangement.   "Affiliate"  for
     purposes hereof means, with respect to any person or entity, another person
     or entity that, directly or indirectly, (i) has a ten percent (10%) or more
     equity  interest  in that person or entity,  (ii) has ten percent  (10%) or
     more common  ownership  with that  person or entity,  (iii)  controls  that
     person or entity, or (iv) shares common control with that person or entity.
     "Control" or "controls"  for purposes  hereof means that a person or entity
     has the power,  direct or  indirect,  to conduct or govern the  policies of
     another person or entity.
<PAGE>

          (k) Transfer  Agent.  The Company  covenants  and agrees that,  in the
     event that the Company's agency relationship with the transfer agent should
     be  terminated  for any reason prior to a date which is two (2) years after
     the Closing  Date,  the Company  shall  immediately  appoint a new transfer
     agent and shall require that the new transfer agent execute and agree to be
     bound by the  terms of the  Irrevocable  Transfer  Agent  Instructions  (as
     defined herein).

          (l)  Restriction  on  Issuance of the  Capital  Stock.  So long as any
     Convertible Debentures are outstanding,  the Company shall not, without the
     prior written consent of the Buyer(s), issue or sell shares of Common Stock
     or Preferred Stock (i) without  consideration  or for a  consideration  per
     share less than the Bid Price of the Common  Stock  determined  immediately
     prior to its issuance, (ii) any warrant,  option, right, contract, call, or
     other security instrument granting the holder thereof, the right to acquire
     Common Stock without  consideration  or for a consideration  less than such
     Common  Stock's  Bid  Price  value  determined  immediately  prior  to it's
     issuance,  (iii) enter into any security  instrument  granting the holder a
     security  interest in any and all assets of the  Company,  or (iv) file any
     registration statement on Form S-8.

     5. TRANSFER AGENT INSTRUCTIONS.

     The Company shall issue the Irrevocable  Transfer Agent Instructions to its
transfer  agent  irrevocably  appointing  Butler  Gonzalez  LLP as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s) or
its respective  nominee(s),  for the Conversion Shares representing such amounts
of Convertible  Debentures as specified from time to time by the Buyer(s) to the
Company  upon  conversion  of the  Convertible  Debentures,  for  interest  owed
pursuant to the Convertible  Debenture,  and for any and all Liquidated  Damages
(as this term is defined in the Investor Registration Rights Agreement).  Butler
Gonzalez LLP shall be paid a cash fee of Fifty Dollars ($50) for every  occasion
they act pursuant to the Irrevocable  Transfer Agent  Instructions.  The Company
shall not change its transfer agent without the express  written  consent of the
Buyer(s), which may be withheld by the Buyer(s) in its sole discretion. Prior to
registration of the Conversion  Shares under the 1933 Act, all such certificates
shall bear the restrictive  legend  specified in Section 2(g) of this Agreement.
The Company  warrants that no instruction  other than the  Irrevocable  Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give  effect to Section  2(g)  hereof (in the case of the  Conversion  Shares
prior to  registration  of such shares  under the 1933 Act) will be given by the
Company to its transfer agent and that the Conversion  Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this  Agreement  and the  Investor  Registration  Rights  Agreement.
Nothing in this  Section 5 shall affect in any way the Buyer's  obligations  and
agreement  to  comply  with  all  applicable  securities  laws  upon  resale  of
Conversion  Shares.  If the  Buyer(s)  provides  the Company  with an opinion of
counsel,  in form,  scope and  substance  customary  for  opinions of counsel in
comparable  transactions  to the  effect  that  registration  of a resale by the
Buyer(s) of any of the Conversion Shares is not required under the 1933 Act, the
Company shall within two (2) business days instruct its transfer  agent to issue
one or more certificates in such name and in such  denominations as specified by
the  Buyer.  The  Company  acknowledges  that a breach by it of its  obligations
hereunder will cause  irreparable  harm to the Buyer by vitiating the intent and
purpose  of  the  transaction  contemplated  hereby.  Accordingly,  the  Company
acknowledges  that the remedy at law for a breach of its obligations  under this
Section 5 will be inadequate and agrees,  in the event of a breach or threatened
breach by the Company of the

<PAGE>

provisions of this Section 5, that the Buyer(s)  shall be entitled,  in addition
to all other  available  remedies,  to an injunction  restraining any breach and
requiring  immediate  issuance and  transfer,  without the  necessity of showing
economic loss and without any bond or other security being required.

     6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

     The obligation of the Company  hereunder to issue and sell the  Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing  Dates,  of each of the following  conditions,  provided that
these  conditions  are for the  Company's  sole benefit and may be waived by the
Company at any time in its sole discretion:

          (a) Each Buyer  shall  have  executed  this  Agreement,  the  Security
     Agreement,  the  Escrow  Agreement  and the  Investor  Registration  Rights
     Agreement and the Irrevocable Transfer Agent Instructions and delivered the
     same to the Company.

          (b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase
     Price for Convertible Debentures in respective amounts as set forth next to
     each Buyer as outlined on Schedule I attached  hereto and the Escrow  Agent
     shall have  delivered  the net proceeds to the Company by wire  transfer of
     immediately available U.S. funds pursuant to the wire instructions provided
     by the Company.

          (c) The  representations  and warranties of the Buyer(s) shall be true
     and correct in all material respects as of the date when made and as of the
     Closing Dates as though made at that time (except for  representations  and
     warranties that speak as of a specific  date),  and the Buyer(s) shall have
     performed,  satisfied  and  complied  in all  material  respects  with  the
     covenants,  agreements  and  conditions  required by this  Agreement  to be
     performed,  satisfied  or complied  with by the Buyer(s) at or prior to the
     Closing Dates.

          (d) The  Company  shall have  filed a form  UCC-1  with  regard to the
     Pledged  Property  and  Pledged  Collateral  as  detailed  in the  Security
     Agreement  dated the date hereof and  provided  proof of such filing to the
     Buyer(s).

     7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.  The obligation of the
Buyer(s)  hereunder to purchase  the  Convertible  Debentures  at the Closing is
subject to the  satisfaction,  at or before  the  Closing  Date,  of each of the
following conditions:

          (a) The Company  shall have  executed  this  Agreement,  the  Security
     Agreement, the Convertible Debenture, the Escrow Agreement, the Irrevocable
     Transfer Instructions and the Investor  Registration Rights Agreement,  and
     delivered the same to the Buyer(s).

          (b) A Form 211 in proper form shall have been filed with the  National
     Association of Securities Dealers and trading in the Common Stock shall not
     have been suspended for any reason.
<PAGE>

          (c) The  representations  and  warranties of the Company shall be true
     and correct in all material respects (except to the extent that any of such
     representations  and  warranties is already  qualified as to materiality in
     Section 3 above, in which case, such  representations  and warranties shall
     be true and correct without further qualification) as of the date when made
     and as of the  Closing  Dates  as  though  made at that  time  (except  for
     representations  and  warranties  that speak as of a specific date) and the
     Company  shall have  performed,  satisfied  and  complied  in all  material
     respects with the covenants,  agreements  and  conditions  required by this
     Agreement to be performed,  satisfied or complied with by the Company at or
     prior to the Closing Dates. If requested by the Buyer, the Buyer shall have
     received a certificate,  executed by the President of the Company, dated as
     of the Closing Dates, to the foregoing  effect and as to such other matters
     as may be reasonably  requested by the Buyer including,  without limitation
     an update as of the Closing Dates regarding the representation contained in
     Section 3(c) above.

          (d) The Company  shall have executed and delivered to the Buyer(s) the
     Convertible  Debentures in the  respective  amounts set forth opposite each
     Buyer(s) name on Schedule I attached hereto.

          (e) The  Buyer(s)  shall have  received  an  opinion  of counsel  from
     Kirkpatrick & Lockhart, LLP in a form satisfactory to the Buyer(s).

          (f) The Company shall have  provided to the Buyer(s) a certificate  of
     good  standing  from the  secretary  of state  from the  state in which the
     company is incorporated.

          (g) As of the Closing Date, the Company shall have reserved out of its
     authorized and unissued  Common Stock,  solely for the purpose of effecting
     the  conversion of the  Convertible  Debentures,  shares of Common Stock to
     effect the conversion of all of the Conversion Shares then outstanding.

          (h) The Irrevocable Transfer Agent Instructions, in form and substance
     satisfactory to the Buyer, shall have been delivered to and acknowledged in
     writing by the Company's transfer agent.

          (i)  The   Company   shall   have   provided   to  the   Investor   an
     acknowledgement,   to  the  satisfaction  of  the  Investor,  from  Follmer
     Rudzewicz,  CPA's as to its  ability to provide  all  consents  required in
     order to file a registration statement in connection with this transaction.

          (j) The  Company  shall have filed a form UCC-1 or such other forms as
     may be required to perfect the Buyer's interest in the Pledged Property and
     Pledged  Collateral  as detailed in the Security  Agreement  dated the date
     hereof and provided proof of such filing to the Buyer(s).

     8. INDEMNIFICATION.

          (a) In  consideration  of the Buyer's  execution  and delivery of this
     Agreement and  acquiring  the  Convertible  Debentures  and the  Conversion
     Shares hereunder, and in addition to all of the Company's other obligations
     under this Agreement, the Company shall defend, protect, indemnify and hold
     harmless the Buyer(s) and each other holder of the  Convertible

<PAGE>

     Debentures and the Conversion Shares, and all of their officers, directors,
     employees and agents  (including,  without  limitation,  those  retained in
     connection   with  the   transactions   contemplated   by  this  Agreement)
     (collectively,  the  "Buyer  Indemnitees")  from  and  against  any and all
     actions, causes of action, suits, claims, losses, costs,  penalties,  fees,
     liabilities and damages, and expenses in connection therewith (irrespective
     of  whether  any such Buyer  Indemnitee  is a party to the action for which
     indemnification  hereunder is sought), and including reasonable  attorneys'
     fees and  disbursements  (the "Indemnified  Liabilities"),  incurred by the
     Buyer  Indemnitees  or any of them as a result  of, or  arising  out of, or
     relating to (a) any  misrepresentation  or breach of any  representation or
     warranty made by the Company in this Agreement,  the Convertible Debentures
     or the Investor  Registration  Rights  Agreement or any other  certificate,
     instrument or document  contemplated  hereby or thereby,  (b) any breach of
     any  covenant,  agreement or  obligation  of the Company  contained in this
     Agreement,  or the  Investor  Registration  Rights  Agreement  or any other
     certificate,  instrument or document contemplated hereby or thereby, or (c)
     any cause of action,  suit or claim brought or made against such Indemnitee
     and arising out of or resulting from the execution,  delivery,  performance
     or  enforcement  of this  Agreement  or any other  instrument,  document or
     agreement  executed  pursuant  hereto  by  any  of  the  Indemnities,   any
     transaction  financed or to be  financed  in whole or in part,  directly or
     indirectly, with the proceeds of the issuance of the Convertible Debentures
     or the  status of the Buyer or holder  of the  Convertible  Debentures  the
     Conversion Shares, as a Buyer of Convertible  Debentures in the Company. To
     the  extent  that  the  foregoing   undertaking   by  the  Company  may  be
     unenforceable   for  any  reason,   the  Company  shall  make  the  maximum
     contribution  to the payment and  satisfaction  of each of the  Indemnified
     Liabilities, which is permissible under applicable law.

          (b) In consideration  of the Company's  execution and delivery of this
     Agreement,  and in addition to all of the Buyer's other  obligations  under
     this  Agreement,  the  Buyer  shall  defend,  protect,  indemnify  and hold
     harmless  the Company and all of its  officers,  directors,  employees  and
     agents (including,  without  limitation,  those retained in connection with
     the  transactions  contemplated  by  this  Agreement)  (collectively,   the
     "Company Indemnitees") from and against any and all Indemnified Liabilities
     incurred by the  Indemnitees  or any of them as a result of, or arising out
     of,  or   relating   to  (a)  any   misrepresentation   or  breach  of  any
     representation  or  warranty  made by the  Buyer(s)  in this  Agreement,  ,
     instrument  or  document  contemplated  hereby or thereby  executed  by the
     Buyer,  (b) any breach of any  covenant,  agreement  or  obligation  of the
     Buyer(s)  contained in this  Agreement,  the Investor  Registration  Rights
     Agreement or any other  certificate,  instrument  or document  contemplated
     hereby or thereby  executed by the Buyer, or (c) any cause of action,  suit
     or claim brought or made against such Company  Indemnitee based on material
     misrepresentations  or due  to a  material  breach  and  arising  out of or
     resulting from the execution,  delivery, performance or enforcement of this
     Agreement,   the  Investor  Registration  Rights  Agreement  or  any  other
     instrument,  document or agreement  executed  pursuant hereto by any of the
     Company Indemnities.  To the extent that the foregoing  undertaking by each
     Buyer may be  unenforceable  for any  reason,  each  Buyer  shall  make the
     maximum  contribution  to the  payment  and  satisfaction  of  each  of the
     Indemnified Liabilities, which is permissible under applicable law.
<PAGE>

     9. GOVERNING LAW: MISCELLANEOUS.

     (a) Governing Law. This Agreement  shall be governed by and  interpreted in
accordance  with  the  laws of the  State  of  Delaware  without  regard  to the
principles  of  conflict  of laws.  The  parties  further  agree that any action
between them shall be heard in Hudson County,  New Jersey, and expressly consent
to the  jurisdiction  and venue of the Superior Court of New Jersey,  sitting in
Hudson  County and the United  States  District  Court for the  District  of New
Jersey sitting in Newark,  New Jersey for the  adjudication  of any civil action
asserted pursuant to this Paragraph.

     (b)  Counterparts.  This Agreement may be executed in two or more identical
counterparts,  all of which shall be considered  one and the same  agreement and
shall  become  effective  when  counterparts  have been signed by each party and
delivered to the other party.  In the event any  signature  page is delivered by
facsimile transmission,  the party using such means of delivery shall cause four
(4) additional  original executed signature pages to be physically  delivered to
the other party within five (5) days of the execution and delivery hereof.

     (c)  Headings.  The  headings  of this  Agreement  are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

     (d)  Severability.  If any provision of this Agreement  shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction  or the  validity  or  enforceability  of  any  provision  of  this
Agreement in any other jurisdiction.

     (e) Entire Agreement, Amendments. This Agreement supersedes all other prior
oral or written agreements between the Buyer(s),  the Company,  their affiliates
and persons acting on their behalf with respect to the matters discussed herein,
and this  Agreement and the  instruments  referenced  herein  contain the entire
understanding  of the parties  with  respect to the matters  covered  herein and
therein and,  except as  specifically  set forth herein or therein,  neither the
Company  nor  any  Buyer  makes  any  representation,   warranty,   covenant  or
undertaking with respect to such matters.  No provision of this Agreement may be
waived or amended other than by an instrument in writing  signed by the party to
be charged with enforcement.

     (f)  Notices.  Any  notices,  consents,  waivers,  or other  communications
required or permitted to be given under the terms of this  Agreement  must be in
writing  and will be  deemed  to have  been  delivered  (i) upon  receipt,  when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S.  certified  mail,  return  receipt
requested,  or (iv)  one (1) day  after  deposit  with a  nationally  recognized
overnight  delivery  service,  in each case  properly  addressed to the party to
receive the same.  The addresses and facsimile  numbers for such  communications
shall be:
<PAGE>

     If to the Company,  to: Productivity  Technologies  Corporation 3100 Copper
Avenue Fenton, Michigan 48430 Attention:  Jesse A. Levine, CFO Telephone:  (248)
219-5500 Facsimile: (248)-645-9701

With a copy to:                        Kirkpatrick & Lockhart LLP
                                       201 South Biscayne Boulevard - Suite 2000
                                       Miami, FL  33131-2399
                                       Attention:        Clayton E. Parker, Esq.
                                       Telephone:        (305) 539-3300
                                       Facsimile:        (305) 358-7095

If to the Transfer Agent, to:          Continental Stock Transfer
                                       2 Broadway
                                       New York, New York 10004
                                       Attention:
                                       Telephone:        (212) 635-3654
                                       Facsimile:        (212) 615-7608

With Copy to:                          Cornell Capital Partners, LP
                                       101 Hudson Street - Suite 3700
                                       Jersey City, New Jersey 07302
                                       Attention:        Troy J. Rillo
                                       Telephone:        (201) 985-8300
                                       Facsimile:        (201) 985-8266

     If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the  Buyer's  counsel as set forth on  Schedule  I. Each  party  shall
provide five (5) days' prior written  notice to the other party of any change in
address or facsimile number.

          (g) Successors and Assigns.  This Agreement  shall be binding upon and
     inure to the  benefit of the parties and their  respective  successors  and
     assigns.  Neither the Company nor any Buyer shall assign this  Agreement or
     any rights or obligations  hereunder  without the prior written  consent of
     the other party hereto.

          (h) No Third Party  Beneficiaries.  This Agreement is intended for the
     benefit of the parties hereto and their respective permitted successors and
     assigns,  and is not for the  benefit of, nor may any  provision  hereof be
     enforced by, any other person.

          (i) Survival.  Unless this Agreement is terminated under Section 9(l),
     the  representations  and  warranties  of  the  Company  and  the  Buyer(s)
     contained in Sections 2 and 3, the  agreements  and  covenants set forth in
     Sections  4, 5 and 9,  and the  indemnification  provisions  set  forth  in
     Section  8,  shall  survive  the  Closing  for a  period  of two (2)  years
     following  the date on which the  Convertible  Debentures  are converted in
     full. The Buyer(s) shall be responsible  only for its own  representations,
     warranties, agreements and covenants hereunder.
<PAGE>

          (j)  Publicity.  The Company and the Buyer(s)  shall have the right to
     approve,  before  issuance any press release or any other public  statement
     with  respect to the  transactions  contemplated  hereby made by any party;
     provided,  however,  that the Company shall be entitled,  without the prior
     approval  of the  Buyer(s),  to issue any  press  release  or other  public
     disclosure  with respect to such  transactions  required  under  applicable
     securities  or other laws or  regulations  (the Company  shall use its best
     efforts to consult the Buyer(s) in  connection  with any such press release
     or other  public  disclosure  prior to its  release and  Buyer(s)  shall be
     provided with a copy thereof upon release thereof).

          (k) Further  Assurances.  Each party shall do and perform, or cause to
     be done and performed,  all such further acts and things, and shall execute
     and  deliver  all such  other  agreements,  certificates,  instruments  and
     documents,  as the other party may reasonably request in order to carry out
     the  intent  and   accomplish  the  purposes  of  this  Agreement  and  the
     consummation of the transactions contemplated hereby.

          (l) Termination. In the event that the Closing shall not have occurred
     with  respect to the Buyers on or before  five (5)  business  days from the
     date  hereof due to the  Company's  or the  Buyer's  failure to satisfy the
     conditions  set  forth in  Sections  6 and 7 above  (and the  non-breaching
     party's failure to waive such unsatisfied condition(s)),  the non-breaching
     party shall have the option to  terminate  this  Agreement  with respect to
     such  breaching  party  at the  close  of  business  on such  date  without
     liability of any party to any other party; provided,  however, that if this
     Agreement is terminated by the Company  pursuant to this Section 9(l),  the
     Company  shall remain  obligated to reimburse the Buyer(s) for the fees and
     expenses of Butler Gonzalez described in Section 4(g) above.

          (m) No Strict  Construction.  The language used in this Agreement will
     be deemed to be the language  chosen by the parties to express their mutual
     intent,  and no rules of strict  construction  will be applied  against any
     party.

                    [REMAINDER PAGE INTENTIONALLY LEFT BLANK]
<PAGE>

          IN WITNESS  WHEREOF,  the  Buyers and the  Company  have  caused  this
     Securities  Purchase  Agreement  to be duly  executed  as of the date first
     written above.

                                         COMPANY:
                                         PRODUCTIVITY TECHNOLOGIES CORPORATION

                                         By:      /s/Jesse A. Levine
                                            ------------------------------------
                                         Name     Jesse A. Levine
                                         Title:   CFO

<PAGE>

                                                                       EXHIBIT A

                 FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT

<PAGE>

                                                                       EXHIBIT B

                            FORM OF ESCROW AGREEMENT

<PAGE>

                                                                       EXHIBIT C

                           TRANSFER AGENT INSTRUCTIONS

<PAGE>
<TABLE>
<CAPTION>
                                                    SCHEDULE I

                                                SCHEDULE OF BUYERS

                                                                                 Address/Facsimile             Amount of
               Name                              Signature                        Number of Buyer             Subscription
--------------------------------    -----------------------------------  ------------------------------    -------------------
<S>                                 <C>                                  <C>                       <C>           <C>
Cornell Capital Partners, LP        By:      Yorkville Advisors, LLC     101 Hudson Street - Suite 3700          $  560,000
                                    Its:     General Partner             Jersey City, NJ  07303
                                                                         Facsimile:        (201) 985-8266

                                    By:______________________            With a copy to:
                                    Name:    Mark A. Angelo              Troy J. Rillo
                                    Its:     Portfolio Manager

</TABLE>EXHIBIT 10.10

THIS  SECURED  DEBENTURE,  AND  THE  SECURITIES  INTO  WHICH  IT IS  CONVERTIBLE
(COLLECTIVELY,  THE  "SECURITIES"),  HAVE NOT BEEN  REGISTERED  WITH THE  UNITED
STATES  SECURITIES AND EXCHANGE  COMMISSION OR THE SECURITIES  COMMISSION OF ANY
STATE.  THE  SECURITIES  ARE  BEING  OFFERED  PURSUANT  TO A  SAFE  HARBOR  FROM
REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT").  THE SECURITIES ARE  "RESTRICTED" AND MAY NOT BE OFFERED OR
SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,  PURSUANT TO REGULATION
D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION  REQUIREMENTS OF THE
ACT AND THE  COMPANY  WILL BE  PROVIDED  WITH  OPINION  OF COUNSEL OR OTHER SUCH
INFORMATION  AS IT MAY  REASONABLY  REQUIRE TO CONFIRM THAT SUCH  EXEMPTIONS ARE
AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE
EXCEPT IN COMPLIANCE WITH THE ACT.

                                SECURED DEBENTURE

                      PRODUCTIVITY TECHNOLOGIES CORPORATION

                        5% Secured Convertible Debenture

                                 June ___, 2007

No.  ___                                                           US$200,000.00

          This Secured  Debenture (the  "Debenture")  is issued by  Productivity
     Technologies  Corporation,  a  Delaware  corporation  (the  "Company"),  to
     Cornell Capital  Partners,  LP (together with its permitted  successors and
     assigns,  the "Holder")  pursuant to exemptions from registration under the
     Securities Act of 1933, as amended.

                                   ARTICLE I.

     Section 1.01 Principal and Interest.  For value received,  on June 21, 2004
(the "Closing  Date"),  the Company  hereby  promises to pay to the order of the
Holder in  lawful  money of the  United  States of  America  and in  immediately
available  funds  the  principal  sum  of  Two  Hundred  Thousand  U.S.  Dollars
(US$200,000),  together with interest on the unpaid  principal of this Debenture
at the rate of five  percent  (5%) per year  (computed on the basis of a 365-day
year and the actual days elapsed) from the date of this Debenture until paid. At
the Company's option, the entire principal amount and all accrued interest shall
be either (a) paid to the Holder on the third  (3rd) year  anniversary  from the
date hereof or (b)  converted in accordance  with Section 1.02 herein  provided,
however, that in no event shall the Holder be entitled to convert this Debenture
for a number of shares  of  Common  Stock in excess of that  number of shares of
Common  Stock  which,  upon giving  effect to such  conversion,  would cause the
aggregate number of

<PAGE>

shares of Common Stock  beneficially  owned by the Holder and its  affiliates to
exceed  4.99% of the  outstanding  shares of the  Common  Stock  following  such
conversion.

     Section 1.02 Optional Conversion. The Holder is entitled, at its option, to
convert,  and sell on the same  day,  at any time and from  time to time,  until
payment in full of this  Debenture,  all or any part of the principal  amount of
the Debenture,  plus accrued interest,  into shares (the "Conversion Shares") of
the Company's  common stock, par value US$0.001 per share ("Common  Stock"),  at
the price per  share  (the  "Conversion  Price")  equal to the  lesser of (a) an
amount equal to one hundred  twenty  percent  (120%) of the closing bid price of
the Common Stock as listed on a Principal Market (as defined herein),  as quoted
by Bloomberg  L.P.  (the  "Closing Bid Price") as of the date hereof,  or (b) an
amount  equal to eighty  percent  (80%) of the lowest  closing  bid price of the
Company's  Common Stock,  as quoted by Bloomberg,  LP (the "Closing Bid Price"),
for the five (5) trading days immediately  preceding (x) the Conversion Date (as
defined herein) or (y) the Redemption  Price (as defined  herein)  Subparagraphs
(a) and (b) above are individually  referred to as a "Conversion Price". As used
herein,  "Principal  Market" shall mean The National  Association  of Securities
Dealers Inc.'s  Over-The-Counter  Bulletin  Board,  Nasdaq SmallCap  Market,  or
American  Stock  Exchange.  If the  Common  Stock is not  traded on a  Principal
Market, the Closing Bid Price shall mean, the reported Closing Bid Price for the
Common Stock,  as furnished by the National  Association of Securities  Dealers,
Inc., or the Pink Sheets for the  applicable  periods.  No fraction of shares or
scrip  representing  fractions of shares will be issued on  conversion,  but the
number of shares  issuable  shall be  rounded to the  nearest  whole  share.  To
convert this Debenture,  the Holder hereof shall deliver written notice thereof,
substantially  in the form of Exhibit "A" to this  Debenture,  with  appropriate
insertions (the "Conversion Notice"), to the Company at its address as set forth
herein.  The date upon which the conversion  shall be effective (the "Conversion
Date") shall be deemed to be the date set forth in the  Conversion  Notice if no
Redemption  Notice is  received  by the  Holder in  accordance  with the  second
sentence of Section 1.04 hereof or the  Redemption  Date if a Redemption  Notice
has been received.

     Section 1.03  Reservation  of Common  Stock.  The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the  conversion of this  Debenture,  such number of
shares of Common Stock as shall from time to time be  sufficient  to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its  stockholders  within sixty
(60)  days of that  time  for the sole  purpose  of  increasing  the  number  of
authorized shares of Common Stock.

     Section 1.04 Right of Redemption. At any time that no Conversion Notice has
been delivered by the Holder,  the Company at its option shall have the right to
redeem,  with three (3) business days advance  written  notice (the  "Redemption
Notice"), a portion or all outstanding convertible debenture. Upon delivery of a
Conversion  Notice,  the Company  shall have the right to redeem that portion of
the Debenture that the Holder has elected to convert by providing written notice
to the Holder within two Trading Days of the date of the Conversion  Notice (the
"Redemption  Date").  The  redemption  price shall be one hundred twenty percent
(120%) of the amount redeemed plus accrued interest.
<PAGE>

     In the event the Company  exercises a redemption of either all or a portion
the Convertible Debenture,  the Holder shall receive a warrant to purchase fifty
thousand  (50,000)  shares of the  Company's  Common Stock for every One Hundred
Thousand U.S.  Dollars  (US$100,000)  redeemed,  pro rata (the  "Warrant").  The
Warrant shall be exercisable on a "cash basis" and have an exercise price of one
hundred percent (100%) of the Closing Bid Price of the Company's Common Stock on
the Closing Date. The Warrant shall have  "piggy-back"  and demand  registration
rights and shall survive for two (2) years from the Closing Date.

     Section 1.05 Registration  Rights. The Company is obligated to register the
resale of the  Conversion  Shares under the  Securities Act of 1933, as amended,
pursuant to the terms of a Registration  Rights  Agreement,  between the Company
and  the  Holder  of even  date  herewith  (the  "Investor  Registration  Rights
Agreement").

     Section 1.06 Interest Payments. The interest so payable will be paid at the
time of maturity or  conversion  to the person in whose name this  Debenture  is
registered.  At the time such interest is payable,  the Company may elect to pay
the interest in cash (via wire  transfer or  certified  funds) or in the form of
Common Stock. In the event of default as described in Article III,  Section 3.01
hereunder,  the interest  shall be paid in the form of Common Stock.  If paid in
the form of Common Stock, the amount of stock to be issued will be calculated as
follows:  the value of the stock shall be the Closing Bid Price on: (i) the date
the interest  payment is due; or (ii) if the  interest  payment is not made when
due, the date the  interest  payment is made. A number of shares of Common Stock
with a value equal to the amount of interest due shall be issued.  No fractional
shares  will be  issued;  therefore,  in the event  that the value of the Common
Stock per share does not equal the total  interest due, the Company will pay the
balance in cash.

     Section 1.07 Paying Agent and Registrar. Initially, the Company will act as
paying agent and registrar.  The Company may change any paying agent, registrar,
or  Company-registrar by giving the Holder not less than ten (10) business days'
written notice of its election to do so, specifying the name, address, telephone
number and facsimile  number of the paying agent or  registrar.  The Company may
act in any such capacity.

     Section 1.08 Secured  Nature of Debenture.  This  Debenture is secured by a
second  position  security  interest  on all of the assets and  property  of the
Company  as set forth on  Exhibit  A to the  Security  Agreement  dated the date
hereof  between the Company and the Holder (the  "Security  Agreement").  As set
forth in the Security Agreement, Holder's security interest shall terminate upon
the occurrence of an Expiration Event as defined in the Security Agreement.

                                  ARTICLE II.

     Section 2.01  Amendments  and Waiver of Default.  The  Debenture may not be
amended.  Notwithstanding  the above,  without the  consent of the  Holder,  the
Debenture may be amended to cure any ambiguity,  defect or inconsistency,  or to
provide for assumption of the Company obligations to the Holder.

                                  ARTICLE III.

     Section 3.01 Events of Default.  An Event of Default  shall mean any of the
following:  (a)  failure by the  Company to pay  amounts  due  hereunder  within
fifteen (15) days of the date of

<PAGE>

maturity of this  Debenture;  (b) failure by the Company to strictly comply with
the terms of the  Irrevocable  Transfer  Agent  Instructions  as  defined in the
Securities  Purchase  Agreement;  (c) failure by the Company's transfer agent to
issue freely  tradeable  Common Stock to the Holder  within five (5) days of the
Company's receipt of the attached Notice of Conversion from Holder;  (d) failure
by the  Company  for ten (10) days after  notice to it to comply with any of its
other agreements in the Debenture;  (e) events of bankruptcy or insolvency;  (f)
an Event of Default as defined  under the  Securities  Purchase  Agreement,  the
Investor  Registration  Rights Agreement or the Security  Agreement of even date
herewith or breach by the Company of its representations, warranties, covenants,
obligations or agreements under the Securities Purchase Agreement,  the Investor
Registration  Rights  Agreement,  the Security  Agreement or any other agreement
entered into in  connection  therewith or delivered by the Company to the Holder
in connection  therewith;  or (g) if the Company's  Common Stock is not approved
for listing by the  National  Association  of  Securities  Dealers,  Inc. on the
Over-the-Counter  Bulletin  Board  within  ninety (90) days of the date  hereof,
which is not cured by the Company  within ten (10) days after receipt of written
notice thereof.  Upon the occurrence of an Event of Default,  the Holder may, in
its sole discretion, accelerate full repayment of all debentures outstanding and
accrued interest thereon and/or may,  notwithstanding any limitations  contained
in this Debenture and/or the Securities Purchase Agreement dated the date hereof
between the Company and Cornell Capital Partners, L.P. (the "Securities Purchase
Agreement"),  convert all debentures  outstanding and accrued  interest  thereon
into shares of Common Stock pursuant to Section 1.02 herein.

     Section 3.02 Failure to Issue  Unrestricted  Common Stock.  As indicated in
Article III Section 3.01, a breach by the Company of its  obligations  under the
Investor  Registration  Rights  Agreement  shall be deemed an Event of  Default,
which if not cured within ten (10) days,  shall entitle the Holder to accelerate
full repayment of all debentures  outstanding and accrued  interest  thereon or,
notwithstanding   any  limitations   contained  in  this  Debenture  and/or  the
Securities Purchase Agreement, to convert all debentures outstanding and accrued
interest  thereon into shares of Common  Stock  pursuant to Section 1.02 herein.
The Company  acknowledges  that  failure to honor a Notice of  Conversion  shall
cause irreparable harm to the Holder.

                                  ARTICLE IV.

     Section 4.01 Rights and Terms of Conversion. This Debenture, in whole or in
part,  may be converted at any time  following the Closing Date,  into shares of
Common  Stock at a price equal to the  Conversion  Price as described in Section
1.02 above.

     Section 4.02 Re-issuance of Debenture.  When the Holder elects to convert a
part of the  Debenture,  then the Company  shall  reissue a new Debenture in the
same form as this Debenture to reflect the new principal amount.

     Section 4.03  Termination  of  Conversion  Rights.  The  Holder's  right to
convert the Debenture  into the Common Stock in accordance  with  paragraph 4.01
shall  terminate on the date that is the third (3rd) year  anniversary  from the
date hereof and this Debenture shall be automatically  converted on that date in
accordance  with  the  formula  set  forth  in  Section  4.01  hereof,  and  the
appropriate shares of Common Stock and amount of interest shall be issued to the
Holder.
<PAGE>

                                   ARTICLE V.

     Section 5.01 Anti-dilution. In the event that the Company shall at any time
subdivide  the  outstanding  shares  of  Common  Stock,  or shall  issue a stock
dividend  on the  outstanding  Common  Stock,  the  Conversion  Price in  effect
immediately  prior to such subdivision or the issuance of such dividend shall be
proportionately  decreased,  and in the event that the Company shall at any time
combine the outstanding  shares of Common Stock,  the Conversion Price in effect
immediately  prior  to such  combination  shall  be  proportionately  increased,
effective at the close of business on the date of such subdivision,  dividend or
combination as the case may be.

     Section  5.02  Consent of Holder to Sell  Capital  Stock or Grant  Security
Interests.  Except for the Standby Equity Distribution  Agreement dated the date
hereof between the Company and Cornell Capital  Partners,  LP, so long as any of
the principal of or interest on this Debenture  remains unpaid and  unconverted,
the Company shall not,  without the prior  consent of the Holder,  issue or sell
(i)  any  Common  Stock  or  Preferred  Stock  without  consideration  or  for a
consideration  per share less than its fair market value 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 a
consideration  per  share  less than  such  Common  Stock's  fair  market  value
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
Company, or (iv) file any registration statement on Form S-8.

                                  ARTICLE VI.

     Section 6.01 Notice.  Notices regarding this Debenture shall be sent to the
parties at the following  addresses,  unless a party notifies the other parties,
in writing, of a change of address:

If to the Company, to:                 Productivity Technologies Corporation
                                       3100 Copper Avenue
                                       Fenton, Michigan 48430
                                       Attention:        Jesse A. Levine, CFO
                                       Telephone:        (248) 219-5500
                                       Facsimile:        (248)-645-9701

With a copy to:                        Kirkpatrick & Lockhart LLP
                                       201 South Biscayne Boulevard - Suite 2000
                                       Miami, FL  33131-2399
                                       Attention:        Clayton E. Parker, Esq.
                                       Telephone:        (305) 539-3300
                                       Facsimile:        (305) 358-7095
<PAGE>

If to the Holder:                      Cornell Capital Partners, LP
                                       101 Hudson Street, Suite 3700
                                       Jersey City, NJ  07303
                                       Attn:    Mark Angelo
                                       Telephone:        (201) 985-8300
                                       Facsimile:        (201) 985-8266

With a copy to:                        Cornell Capital Partners, LP
                                       101 Hudson Street, Suite 3700
                                       Jersey City, NJ  07303
                                       Attn:    Troy J. Rillo
                                       Telephone:        (201) 985-8300
                                       Facsimile:        (201) 985-8266

     Section 6.02 Governing Law. This Debenture shall be deemed to be made under
and shall be  construed  in  accordance  with the laws of the State of  Delaware
without giving effect to the principals of conflict of laws thereof. Each of the
parties consents to the  jurisdiction of the U.S.  District Court sitting in the
District  of the State of New  Jersey  or the  state  courts of the State of New
Jersey  sitting in Hudson  County,  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 6.03 Severability.  The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise  affect any of the other  provisions
of this Debenture, which shall remain in full force and effect.

     Section 6.04 Entire Agreement and Amendments. This Debenture represents the
entire  agreement  between the parties hereto with respect to the subject matter
hereof and there are no  representations,  warranties or commitments,  except as
set forth herein. This Debenture may be amended only by an instrument in writing
executed by the parties hereto.

     Section  6.05  Counterparts.  This  Debenture  may be  executed in multiple
counterparts,  each of which  shall be an  original,  but all of which  shall be
deemed to constitute on instrument.

     IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company
as executed this Debenture as of the date first written above.

                                       PRODUCTIVITY TECHNOLOGIES CORPORATION

                                       By:      /s/Jesse A. Levine
                                          --------------------------------------
                                       Name:    Jesse A. Levine
                                       Title:   CFO

<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  US$_______________ of
the  principal  amount of the above  Debenture  into  Shares of Common  Stock of
Productivity  Technologies  Corporation,  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: US$
                           -----------------------------------------------------
Amount of Debenture unconverted:  US$
                                     -------------------------------------------
Conversion Price per share: US$
                               -------------------------------------------------
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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