Document:

f8k121907a1ex10iii_celsius.htm

    
      Exhibit
        10.3

    

     

     

    SECURITIES
      PURCHASE AGREEMENT

     

    Securities
      Purchase Agreement dated as of December 19, 2007 (this “Agreement”) by and between
      Celsius Holdings, Inc., a Nevada corporation, with principal executive offices
      located at 140 NE 4th
      Avenue,
      Suite C, Delray Beach, Florida 33483 (the “Company”), and Golden Gate
      Investors, Inc. (“Holder”).

     

    WHEREAS,
      Holder desires to purchase from the Company, and the Company desires to issue
      and sell to Holder, upon the terms and subject to the conditions of this
      Agreement, a Convertible Debenture of the Company in the aggregate principal
      amount of $1,500,000 (the “Debenture”); and

     

    WHEREAS,
      upon the terms and subject to the conditions set forth in the Debenture the
      Debenture is convertible into shares of the Company’s Common Stock (the “Common Stock”).

     

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

     

    
      	
              I.  

            	
              PURCHASE
                AND SALE OF DEBENTURE

            

    

     

    A. Transaction.  Holder
      hereby agrees to purchase from the Company, and the Company has offered and
      hereby agrees to issue and sell to Holder in a transaction exempt from the
      registration and prospectus delivery requirements of the Securities Act of
      1933,
      as amended (the “Securities
      Act”), the Debenture.

     

    B. Purchase
      Price; Form of
      Payment.  The purchase price for the Debenture to be purchased
      by Holder hereunder shall be $1,500,000 (the “Purchase
      Price”).  Simultaneously with the execution of this Agreement,
      Holder shall pay the Purchase Price by wire transfer of $250,000 in immediately
      available funds to the Company and delivery to the Company of a Secured
      Promissory Note in the principal amount of $1,250,000, in the form attached
      hereto as Exhibit
      A (the “Promissory
      Note”).  Simultaneously with the execution of this Agreement,
      the Company shall deliver the Debenture (which shall have been duly authorized,
      issued and executed I/N/O Holder or, if the Company otherwise has been notified,
      I/N/O Holder’s nominee) to the Holder.

     

    C. Second
      Debenture.  Provided that no Event of Default (as defined in
      the Debenture) has occurred under the Debenture (provided that Holder may,
      in
      its sole and absolute discretion waive the occurrence of such Event of Default
      with respect to this Section), Holder shall, in Holder’s sole and absolute
      discretion, select a date during the Second Debenture Period (as defined below)
      (with such date as selected by Holder referred to herein as the “Second Debenture Date”) at
      which the Company shall sell and the Holder shall purchase a debenture in the
      principal amount of $1,500,000 in exchange for a purchase price of $1,500,000
      (the “Second
      Debenture”), with such purchase price paid via a cash payment of $250,000
      and the issuance of a promissory note in the principal amount of $1,250,000
      (the
“Second Promissory
      Note”), with the form of and terms of the Second Debenture and the Second
      Promissory Note and payment of the purchase price subject to the same terms
      and
      conditions of this Agreement, the Debenture and the Promissory Note, as
      applicable, and when the Second Debenture is issued, the term “Debenture” as
      used in this Agreement shall be deemed to include the Second Debenture in all
      respects and when the Second Promissory Note is issued, the term “Promissory
      Note” as used in this Agreement shall be deemed to include the Second Promissory
      Note in all respects. 

     

    
       

    

     

    
      
             
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    The
      closing of the purchase and sale of the Second Debenture and the issuance of
      the
      Second Promissory Note shall occur within thirty days of the Second Debenture
      Date.  For the purposes of this Agreement, the “Second Debenture
      Period” shall mean the period that commences on the date hereof and terminates
      upon the date that the remaining Principal Amount of the Debenture is equal
      to
      an amount not greater than $250,000.

     

    D. Third
      Debenture.  Provided that no Event of Default (as defined in
      the Debenture) has occurred under the Debenture (provided that Holder may,
      in
      its sole and absolute discretion waive the occurrence of such Event of Default
      with respect to this Section), Holder shall, in Holder’s sole and absolute
      discretion, select a date during the Third Debenture Period (as defined below)
      (with such date as selected by Holder referred to herein as the “Third Debenture Date”) at
      which the Company shall sell and the Holder shall purchase a debenture in the
      principal amount of $1,500,000 in exchange for a purchase price of $1,500,000
      (the “Third Debenture”),
      with such purchase price paid via a cash payment of $250,000 and the issuance
      of
      a promissory note in the principal amount of $1,250,000 (the “Third Promissory Note”), with
      the form of and terms of the Third Debenture and the Third Promissory Note
      and
      payment of the purchase price subject to the same terms and conditions of this
      Agreement, the Debenture and the Promissory Note, as applicable, and when the
      Third Debenture is issued, the term “Debenture” as used in this Agreement shall
      be deemed to include the Third Debenture in all respects and when the Third
      Promissory Note is issued, the term “Promissory Note” as used in this Agreement
      shall be deemed to include the Third Promissory Note in all respects. The
      closing of the purchase and sale of the Third Debenture and the issuance of
      the
      Third Promissory Note shall occur within thirty days of the Third Debenture
      Date.  For the purposes of this Agreement, the “Third Debenture
      Period” shall mean the period that commences on the date of the issuance of the
      Second Debenture to Holder and terminates upon the date that the remaining
      Principal Amount of the Second Debenture is equal to an amount not greater
      than
      $250,000.

     

    E. Fourth
      Debenture.  Provided that no Event of Default (as defined in
      the Debenture) has occurred under the Debenture (provided that Holder may,
      in
      its sole and absolute discretion waive the occurrence of such Event of Default
      with respect to this Section), Holder shall, in Holder’s sole and absolute
      discretion, select a date during the Fourth Debenture Period (as defined below)
      (with such date as selected by Holder referred to herein as the “Fourth Debenture Date”) at
      which the Company shall sell and the Holder shall purchase a debenture in the
      principal amount of $1,500,000 in exchange for a purchase price of $1,500,000
      (the “Fourth
      Debenture”), with such purchase price paid via a cash payment of $250,000
      and the issuance of a promissory note in the principal amount of $1,250,000
      (the
“Fourth Promissory
      Note”), with the form of and terms of the Fourth Debenture and the Fourth
      Promissory Note and payment of the purchase price subject to the same terms
      and
      conditions of this Agreement, the Debenture and the Promissory Note, as
      applicable, and when the Fourth Debenture is issued, the term “Debenture” as
      used in this Agreement shall be deemed to include the Fourth Debenture in all
      respects and when the Fourth Promissory Note is issued, the term “Promissory
      Note” as used in this Agreement shall be deemed to include the Fourth Promissory
      Note in all respects. The closing of the purchase and sale of the Fourth
      Debenture and the issuance of the Fourth Promissory Note shall occur within
      thirty days of the Fourth Debenture Date.  For the purposes of this
      Agreement, the “Fourth Debenture Period” shall mean the period that commences on
      the date of the issuance of the Third Debenture to Holder and terminates upon
      the date that the remaining Principal Amount of the Third Debenture is equal
      to
      an amount not greater than $250,000.

     

     

    
      
        
          
                   
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    F. Holder
      Non-Funding
      Penalty.  Notwithstanding the foregoing requirements of Holder
      to purchase each of the Second Debenture, Third Debenture and Fourth Debenture
      (each, an “Additional
      Debenture” and collectively, the “Additional Debentures”), in
      the event that Holder elects not to purchase any or all of the Additional
      Debentures within 10 business days of the date that the delivery of funds
      associated with such purchase would otherwise be due, upon 20 days’ prior
      written notice from the Company of such failure to so purchase any or all of
      the
      Additional Debentures, Holder shall pay an amount equal to $100,000 (the “Holder Non-Funding Penalty”)
      to the Company.  The amount payable by the Holder to the Company in
      connection with any damages, losses, claims or other amounts in connection
      with
      the failure of the Holder to purchase any or all of the Additional Debentures
      shall not exceed $100,000 in the aggregate.  Upon the payment of the
      Holder Non-Funding Penalty to the Company, the Holder shall have no further
      obligations or duties under this Agreement, the Debenture or any agreements
      or
      debentures entered into in connection with any of the Additional Debentures,
      if
      any, with respect to the purchase of any Additional Debenture or other duties
      to
      deliver any additional funds to the Company, provided however, that other than
      with respect to the removal of the requirement to enter into any Additional
      Debenture, the Company and the Holder shall remain obligated and bound by the
      remaining terms and conditions of this Agreement, the Debenture, the Promissory
      Note and any agreements or debentures previously entered into in connection
      with
      any Additional Debenture.  The Company’s sole and exclusive remedy in
      the event that the Holder fails to purchase any or all of the Additional
      Debentures shall be the right of the Company to receive the Holder Non-Funding
      Penalty from the Holder.

     

    G. Company
      Non-Funding
      Penalty.  Notwithstanding the foregoing requirements of the
      Company to sell each of the Second Debenture, Third Debenture and Fourth
      Debenture (each, an “Additional
      Debenture” and collectively, the “Additional Debentures”), in
      the event that the Company elects not to sell any or all of the Additional
      Debentures prior to the delivery by Holder of funds associated with such
      purchase, the Company shall pay an amount equal to $45,000 (the “Company Non-Funding Penalty”)
      to the Holder.  The amount payable by the Company to the Holder in
      connection with any damages, losses, claims or other amounts in connection
      with
      the failure of the Company to sell any or all of the Additional Debentures
      shall
      not exceed $45,000 in the aggregate.  Upon the payment of the Company
      Non-Funding Penalty to the Holder, the Company shall have no further obligations
      or duties under this Agreement, the Debenture or any agreements or debentures
      entered into in connection with any of the Additional Debentures, if any, with
      respect to the sale of any Additional Debenture, provided however, that other
      than with respect to the removal of the requirement to enter into any Additional
      Debenture, the Company and the Holder shall remain obligated and bound by the
      remaining terms and conditions of this Agreement, the Debenture, the Promissory
      Note and any agreements or debentures previously entered into in connection
      with
      any Additional Debenture.  The Holder’s sole and exclusive remedy in
      the event that the Company fails to sell any or all of the Additional Debentures
      prior to the delivery by the Holder of the purchase price therefore in the
      form
      set forth herein, shall be the right of the Holder to receive the Company
      Non-Funding Penalty from the Company.

     

     

    
      
                
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              II.  

            	
              HOLDER’S
                REPRESENTATIONS AND WARRANTIES

            

    

     

    Holder
      represents and warrants to and covenants and agrees with the Company as
      follows:

     

    1. Holder
      is
      purchasing the Debenture and the Common Stock issuable upon conversion or
      redemption of the Debenture (the “Conversion Shares” and,
      collectively with the Debenture, the “Securities”) for its own
      account, for investment purposes only and not with a view towards or in
      connection with the public sale or distribution thereof in violation of the
      Securities Act.

     

    2. Holder
      is
      (i) an “accredited investor” within the meaning of Rule 501 of Regulation D
      under the Securities Act, (ii) experienced in making investments of the kind
      contemplated by this Agreement, (iii) capable, by reason of its business and
      financial experience, of evaluating the relative merits and risks of an
      investment in the Securities, and (iv) able to afford the loss of its investment
      in the Securities.

     

    3. Holder
      understands that the Securities are being offered and sold by the Company in
      reliance on an exemption from the registration requirements of the Securities
      Act and equivalent state securities and “blue sky” laws, and that the Company is
      relying upon the accuracy of, and Holder’s compliance with, Holder’s
      representations, warranties and covenants set forth in this Agreement to
      determine the availability of such exemption and the eligibility of Holder
      to
      purchase the Securities;

     

    4. Holder
      understands that the Securities have not been approved or disapproved by the
      Securities and Exchange Commission (the “Commission”) or any state or
      provincial securities commission.

     

    5. This
      Agreement has been duly and validly authorized, executed and delivered by Holder
      and is a valid and binding agreement of Holder enforceable against it in
      accordance with its terms, subject to applicable bankruptcy, insolvency,
      fraudulent conveyance, reorganization, moratorium and similar laws affecting
      creditors’ rights and remedies generally and except as rights to indemnity and
      contribution may be limited by federal or state securities laws or the public
      policy underlying such laws.

     

    
      	
              III.  

            	
              THE
                COMPANY’S REPRESENTATIONS

            

    

     

    The
      Company represents and warrants as of the date hereof to the Holder that, except
      as set forth on Schedule III attached hereto, the statements contained in this
      Section 3 are complete and accurate as of the date of this
      Agreement.  As used in this Section 3, the term “Knowledge” shall mean
      the knowledge of the members of the board of directors of the Company and/or
      the
      officers or employees of the Company after reasonable
      investigation.

     

    A. Capitalization.

     

    1. The
      authorized capital stock of the Company consists of three hundred fifty million
      (350,000,000) shares of Common Stock and fifty million (50,000,000) shares
      of
      Series A Preferred Stock of which 105,580,358 shares and zero shares,
      respectively, are issued and outstanding as of the date hereof and are fully
      paid and nonassessable.  The amount, exercise, conversion or
      subscription price and expiration date for each outstanding option and other
      security or agreement to purchase shares of Common Stock is accurately set
      forth
      on Schedule
      III.A.1.

     

     

     

    
      
                  
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    2. The
      Conversion Shares have been duly and validly authorized and reserved for
      issuance by the Company, and, when issued by the Company upon conversion of
      the
      Debenture, will be duly and validly issued, fully paid and nonassessable and
      will not subject the holder thereof to personal liability by reason of being
      such holder.

     

    3. Except
      as
      disclosed on Schedule III.A.3.,
      there are no preemptive, subscription, “call,” right of first refusal or other
      similar rights to acquire any capital stock of the Company or other voting
      securities of the Company that have been issued or granted to any person and
      no
      other obligations of the Company to issue, grant, extend or enter into any
      security, option, warrant, “call,” right, commitment, agreement, arrangement or
      undertaking with respect to any of their respective capital stock.

     

    B. Organization;
      Reporting Company Status.

     

    1. The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the state or jurisdiction in which it is incorporated and
      is
      duly qualified as a foreign corporation in all jurisdictions in which the
      failure so to qualify would reasonably be expected to have a material adverse
      effect on the business, properties, prospects, condition (financial or
      otherwise) or results of operations of the Company or on the consummation of
      any
      of the transactions contemplated by this Agreement (a “Material Adverse
      Effect”).

     

    2. The
      Company is subject to the reporting requirements of the Securities Exchange
      Act
      of 1934, as amended (the “Exchange Act”).  The
      Common Stock is traded on the OTC Bulletin Board service of the National
      Association of Securities Dealers, Inc. (“OTCBB”) and the Company
      has
      not received any notice regarding, and to its Knowledge there is no threat
      of,
      the termination or discontinuance of the eligibility of the Common Stock for
      such trading.

     

    C. Authorization.  The
      Company (i) has duly and validly authorized and reserved for issuance shares
      of
      Common Stock, which is a number sufficient for the conversion of the Debenture
      in full and (ii) at all times from and after the date hereof shall have a
      sufficient number of shares of Common Stock duly and validly authorized and
      reserved for issuance to satisfy the conversion of the Debenture in
      full.  The Company understands and acknowledges the potentially
      dilutive effect on the Common Stock of the issuance of the Conversion
      Shares.  The Company further acknowledges that its obligation to issue
      Conversion Shares upon conversion of the Debenture in accordance with this
      Agreement is absolute and unconditional regardless of the dilutive effect that
      such issuance may have on the ownership interests of other stockholders of
      the
      Company and notwithstanding the commencement of any case under 11 U.S.C.
§ 101 et
      seq. (the “Bankruptcy
      Code”).  In the event the Company is a debtor under the
      Bankruptcy Code, the Company hereby waives to the fullest extent permitted
      any
      rights to relief it may have under 11 U.S.C. § 362 in respect of the
      conversion of the Debenture.  The Company agrees, without cost or
      expense to Holder, to take or consent to any and all action necessary to
      effectuate relief under 11 U.S.C. § 362.

     

     

    
      
               
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    D. Authority;
      Validity and
      Enforceability.  The Company has the requisite corporate power
      and authority to enter into the Documents (as such term is hereinafter defined)
      and to perform all of its obligations hereunder and thereunder (including the
      issuance, sale and delivery to Holder of the Securities).  The
      execution, delivery and performance by the Company of the Documents and the
      consummation by the Company of the transactions contemplated hereby and thereby
      (including, without limitation, the issuance of the Debenture and the issuance
      and reservation for issuance of the Conversion Shares) have been duly and
      validly authorized by all necessary corporate action on the part of the Company
      and no further filing, consent, or authorization is required by the Company,
      its
      board of directors, or its stockholders.  Each of the Documents has
      been duly and validly executed and delivered by the Company and each Document
      constitutes a valid and binding obligation of the Company enforceable against
      it
      in accordance with its terms, subject to applicable bankruptcy, insolvency,
      fraudulent conveyance, reorganization, moratorium and similar laws affecting
      creditors’ rights and remedies generally and except as rights to indemnity and
      contribution may be limited by federal or state securities laws or the public
      policy underlying such laws.  The Securities have been duly and
      validly authorized for issuance by the Company and, when executed and delivered
      by the Company, will be valid and binding obligations of the Company enforceable
      against it in accordance with their respective terms, subject to applicable
      bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
      similar laws affecting creditors’ rights and remedies generally.  For
      purposes of this Agreement, the term “Documents” means (i) this
      Agreement; (ii) the Debenture; and (iii) the Promissory Note.

     

    E. Validity
      of Issuance of the
      Securities.  The Debenture and the Conversion Shares upon their
      issuance in accordance with the Debenture, will be validly issued and
      outstanding, fully paid and nonassessable, and not subject to any preemptive
      rights, rights of first refusal, tag-along rights, drag-along rights or other
      similar rights.

     

    F. Non-contravention.  The
      execution and delivery by the Company of the Documents, the issuance of the
      Securities, and the consummation by the Company of the other transactions
      contemplated hereby and thereby do not, and compliance with the provisions
      of
      this Agreement and other Documents will not, conflict with, or result in any
      violation of, or default (with or without notice or lapse of time, or both)
      under, or give rise to a right of termination, cancellation or acceleration
      of
      any obligation or loss of a material benefit under, or result in the creation
      of
      any Lien (as such term is hereinafter defined) upon any of the properties or
      assets of the Company or any of its Subsidiaries under, or result in the
      termination of, or require that any consent be obtained or any notice be given
      with respect to (i) the Articles or Certificate of Incorporation or By-Laws
      of
      the Company or the comparable charter or organizational documents of any of
      its
      Subsidiaries, in each case as amended to the date of this Agreement, (ii) any
      loan or credit agreement, debenture, bond, mortgage, indenture, lease, contract
      or other agreement, instrument or permit applicable to the Company or any of
      its
      Subsidiaries or their respective properties or assets or (iii) any statute,
      law,
      rule or regulation applicable to, or any judgment, decree or order of any court
      or government body having jurisdiction over, the Company or any of its
      Subsidiaries or any of their respective properties or assets.  A
“Lien” means any
      assignment, transfer, pledge, mortgage, security interest or other encumbrance
      of any nature, or an agreement to do so, or the ownership or acquisition or
      agreement to acquire any asset or property of any character subject to any
      of
      the foregoing encumbrances (including any conditional sale contract or other
      title retention agreement).

     

     

    
      
                
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    G. Approvals.  No
      authorization, approval or consent of any court or public or governmental
      authority is required to be obtained by the Company for the issuance and sale
      of
      the Securities to Holder as contemplated by this Agreement, except such
      authorizations, approvals and consents as have been obtained by the Company
      prior to the date hereof.

     

    H. Commission
      Filings.  The Company has properly and timely filed with the
      Commission all reports, proxy statements, forms and other documents required
      to
      be filed with the Commission under the Securities Act and the Exchange Act
      since
      becoming subject to such Acts (the “Commission
      Filings”).  As of their respective dates, (i) the Commission
      Filings complied in all material respects with the requirements of the
      Securities Act or the Exchange Act, as the case may be, and the rules and
      regulations of the Commission promulgated thereunder applicable to such
      Commission Filings and (ii) none of the Commission Filings contained at the
      time
      of its filing any untrue statement of a material fact or omitted to state a
      material fact required to be stated therein or necessary in order to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading.  The financial statements of the Company included in
      the Commission Filings, as of the dates of such documents, were true and
      complete in all material respects and complied with applicable accounting
      requirements and the published rules and regulations of the Commission with
      respect thereto, were prepared in accordance with generally accepted accounting
      principles in the United States (“GAAP”) (except in the case
      of
      unaudited statements permitted by Form 10-QSB under the Exchange Act) applied
      on
      a consistent basis during the periods involved (except as may be indicated
      in
      the notes thereto) and fairly presented the consolidated financial position
      of
      the Company and its Subsidiaries as of the dates thereof and the consolidated
      results of their operations and cash flows for the periods then ended (subject,
      in the case of unaudited statements, to normal year-end audit adjustments that
      in the aggregate are not material and to any other adjustment described
      therein).

     

    I. Full
      Disclosure.  There is no fact known to the Company (other than
      general economic or industry conditions known to the public generally) that
      has
      not been fully disclosed in the Commission Filings that (i) reasonably could
      be
      expected to have a Material Adverse Effect or (ii) reasonably could be
      expected to materially and adversely affect the ability of the Company to
      perform its obligations pursuant to the Documents.

     

    J. Absence
      of Events of
      Default.  No “Event of Default” (as defined
      in any agreement or instrument to which the Company is a party) and no event
      which, with notice, lapse of time or both, would constitute an Event of Default
      (as so defined), has occurred and is continuing, except those Events of Default
      that would not result in a Material Adverse Effect.

     

    K. Securities
      Law
      Matters.  Assuming the accuracy of the representations and
      warranties of Holder set forth in Article II, the offer and sale by the Company
      of the Securities is exempt from (i) the registration and prospectus delivery
      requirements of the Securities Act and the rules and regulations of the
      Commission thereunder and (ii) the registration and/or qualification provisions
      of all applicable state and provincial securities and “blue sky”
laws.  

     

     

     

    
      
               
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    The
      Company shall not directly or indirectly take, and shall not permit any of
      its
      directors, officers or Affiliates directly or indirectly to take, any action
      (including, without limitation, any offering or sale to any person or entity
      of
      any security similar to the Debenture) which will make unavailable the exemption
      from Securities Act registration being relied upon by the Company for the offer
      and sale to Holder of the Debenture and the Conversion Shares, as contemplated
      by this Agreement.  No form of general solicitation or advertising has
      been used or authorized by the Company or any of its officers, directors or
      Affiliates in connection with the offer or sale of the Debenture (and the
      Conversion Shares), as contemplated by this Agreement or any other agreement
      to
      which the Company is a party.  As used in the Documents, “Affiliate” has the meaning
      ascribed to such term in Rule 12b-2 under the Exchange Act.

     

    L. Registration
      Rights.  Except as set forth on Schedule III.L.,
      no Person has, and as of the Closing (as such term is hereinafter defined),
      no
      Person shall have, any demand, “piggy-back” or other rights to cause the Company
      to file any registration statement under the Securities Act relating to any
      of
      its securities or to participate in any such registration
      statement.

     

    M. Interest.  The
      timely payment of interest on the Debenture is not prohibited by the Articles
      or
      Certificate of Incorporation or By-Laws of the Company, in each case as amended
      to the date of this Agreement, or any agreement, contract, document or other
      undertaking to which the Company is a party.

     

    N. No
      Misrepresentation.  No representation or warranty of the
      Company contained in this Agreement or any of the other Documents, any schedule,
      annex or exhibit hereto or thereto or any agreement, instrument or certificate
      furnished by the Company to Holder pursuant to this Agreement contains any
      untrue statement of a material fact or omits to state a material fact required
      to be stated therein or necessary to make the statements therein not
      misleading.

     

    O. Finder’s
      Fee.  There
      is no finder’s fee, brokerage commission or like payment in connection with the
      transactions contemplated by this Agreement for which Holder is liable or
      responsible.

     

    P. Subsidiaries.  Other
      than the
      Subsidiaries, the Company does not presently own or control, directly or
      indirectly, any interest in any other corporation, association, or other
      business entity.  The Company is not a participant in any joint
      venture, partnership, or similar arrangement.

     

    Q. Litigation.  Other
      than as
      disclosed in the Commission Filings, there is no action, suit, proceeding or
      investigation pending or, to the Company’s knowledge, currently threatened
      against the Company or its Subsidiaries that questions the validity of this
      Agreement, the Documents, or the right of the Company to enter into such
      agreements, or to consummate the transactions contemplated hereby or thereby,
      or
      that might result, either individually or in the aggregate, in any material
      adverse changes in the business, assets or condition of the Company and its
      Subsidiaries, taken as a whole, financially or otherwise, or any change in
      the
      current equity ownership of the Company or its Subsidiaries.  Neither
      the Company nor its Subsidiaries are parties or subject to the provisions of
      any
      order, writ, injunction, judgment or decree of any court or government agency
      or
      instrumentality.  There is no action, suit, proceeding or
      investigation by the Company or its Subsidiaries currently pending or that
      the
      Company or its Subsidiaries intends to initiate.

     

     

    
      
                
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    R. Agreements.  Except
      for agreements explicitly contemplated hereby, or disclosed in the Commission
      Filings, there are no agreements, understandings or proposed transactions
      between the Company and any of its officers, directors, Affiliates, or any
      affiliate thereof.

     

    S. Tax
      Returns.  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.

     

    
      	
              IV.  

            	
              CERTAIN
                COVENANTS AND ACKNOWLEDGMENTS

            

    

     

    A. Filings.  The
      Company shall make all necessary Commission Filings and “blue sky” filings
      required to be made by the Company in connection with the sale of the Securities
      to Holder as required by all applicable laws, and shall provide a copy thereof
      to Holder promptly after such filing.

     

    B. Reporting
      Status.  So long as Holder beneficially owns any of the
      Securities, the Company shall timely file all reports required to be filed
      by it
      with the Commission pursuant to Section 13 or 15(d) of the Exchange Act or
      otherwise required by the Exchange Act.  On or before the fourth
      Business Day following the date hereof, the Company shall file a Current Report
      on Form 8-K describing the terms of the transactions contemplated by the
      Documents in the form required by the Exchange Act and attaching the material
      Documents (including, without limitation, this Agreement and the Debenture)
      as
      exhibits to such filing.

     

    C. Listing.  Except
      to
      the extent the Company lists its Common Stock on The New York Stock Exchange,
      The American Stock Exchange or The Nasdaq Stock Market, the Company shall use
      its best efforts to maintain its listing of the Common Stock on
      OTCBB.  If the Common Stock is delisted from OTCBB, the Company will
      use its best efforts to list the Common Stock on the most liquid national
      securities exchange or quotation system that the Common Stock is qualified
      to be
      listed on.

     

    D. Reserved
      Conversion Common
      Stock.  The Company at all times from and after the date hereof
      shall have such number of shares of Common Stock duly and validly authorized
      and
      reserved for issuance as shall be sufficient for the conversion in full of
      the
      Debenture.

     

    E. Information.  Each
      of the parties hereto acknowledges and agrees that Holder shall not be provided
      with, nor be given access to, any material non-public information relating
      to
      the Company.

     

     

    
      
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    F. Accounting
      and
      Reserves.  The Company shall maintain a standard and uniform
      system of accounting and shall keep proper books and records and accounts in
      which full, true, and correct entries shall be made of its transactions, all
      in
      accordance with GAAP applied on consistent basis through all periods, and shall
      set aside on such books for each fiscal year all such reserves for depreciation,
      obsolescence, amortization, bad debts and other purposes in connection with
      its
      operations as are required by such principles so applied.

     

    G. Transactions
      with
      Affiliates.  So long as the Debenture is outstanding, neither
      the Company nor any of its Subsidiaries shall, directly or indirectly, enter
      into any material transaction or agreement with any stockholder, officer,
      director or Affiliate of the Company or family member of any officer, director
      or Affiliate of the Company, unless the transaction or agreement is
      (i) reviewed and approved by a majority of Disinterested Directors (as such
      term is hereinafter defined) and (ii) on terms no less favorable to the
      Company or the applicable Subsidiary than those obtainable from a nonaffiliated
      person.  A “Subsidiary” means any entity
      of which securities or other ownership interests having ordinary voting power
      to
      elect a majority of the board of directors or other persons performing similar
      functions are owned directly or indirectly by the Company.  A “Disinterested Director” shall
      mean a director of the Company who is not and has not been an officer or
      employee of the Company and who is not a member of the family of, controlled
      by
      or under common control with, any such officer or employee.

     

    H. Certain
      Restrictions.  So long as the Debenture is outstanding, no
      dividends shall be declared or paid or set apart for payment nor shall any
      other
      distribution be declared or made upon any capital stock of the Company, nor
      shall any capital stock of the Company be redeemed, purchased or otherwise
      acquired (other than a redemption, purchase or other acquisition of shares
      of
      Common Stock made for purposes of an employee incentive or benefit plan
      (including a stock option plan) of the Company or pursuant to any of the
      security agreements listed on Schedule IV.H) for
      any consideration by the Company, directly or indirectly, nor shall any moneys
      be paid to or made available for a sinking fund for the redemption of any Common
      Stock.

     

    I.    Short
      Selling.   So long as the Debenture is outstanding, Holder
      agrees and covenants on its behalf and on behalf of its affiliates that neither
      Holder nor its affiliates shall at any time engage in any short sales with
      respect to the Company’s Common Stock, or sell put options or similar
      instruments with respect to the Company’s Common Stock. The parties acknowledge
      that Holder shall be entitled to sell the Common Stock from each Debenture
      conversion immediately upon submission of the applicable Debenture Conversion
      Notice, and payment of the purchase price, to the Company for such Common
      Stock.

     

    
      	
              V.  

            	
              ISSUANCE
                OF COMMON STOCK

            

    

     

    A. The
      Company undertakes and agrees that no instruction other than the instructions
      referred to in this Article V shall be given to its transfer agent for the
      Conversion Shares 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 applicable law.  Nothing contained in
      this Section V.A. shall affect in any way Holder’s obligations and agreement to
      comply with all applicable securities laws upon resale of such Common
      Stock.

     

     

     

    
      
                 
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    B. Holder
      shall have the right to convert the Debenture by telecopying an executed and
      completed Conversion Notice (as such term is defined in the Debenture) to the
      Company.  Each date on which a Conversion Notice is telecopied to and
      received by the Company in accordance with the provisions hereof shall be deemed
      a Conversion Date (as such term is defined in the Debenture).  The
      Company shall cause the transfer agent to transmit the certificates evidencing
      the Common Stock issuable upon conversion of the Debenture (together with a
      new
      debenture, if any, representing the principal amount of the Debenture not being
      so converted) to Holder via express courier, or if a Registration Statement
      covering the Common Stock has been declared effective by the SEC by electronic
      transfer, within two (2) business days after receipt by the Company of the
      Conversion Notice, as applicable (the “Delivery Date”).

     

    C. Upon
      the
      conversion of the Debenture or respective part thereof, the Company shall,
      at
      its own cost and expense, take all necessary action (including the issuance
      of
      an opinion of counsel) to assure that the Company's transfer agent shall issue
      stock certificates in the name of Holder (or its nominee) or such other persons
      as designated by Holder and in such denominations to be specified at conversion
      or exercise representing the number of shares of common stock issuable upon
      such
      conversion or exercise. The Company warrants that the Conversion Shares will
      be
      unlegended, free-trading, and freely transferable, and will not contain a legend
      restricting the resale or transferability of the Company Common Stock provided
      the Conversion Shares, as applicable, are being sold pursuant to an effective
      registration statement covering the Common Stock to be sold or is otherwise
      exempt from registration when sold.

     

    D. The
      Company understands that a delay in the delivery of the Common Stock in the
      form
      required pursuant to this section, or the Mandatory Redemption Amount described
      in Section E hereof, beyond the Delivery Date or Mandatory Redemption Payment
      Date (as hereinafter defined) could result in economic loss to the Holder.
      As
      compensation to the Holder for such loss, the Company agrees to pay late
      payments to the Holder for late issuance of Common Stock in the form required
      pursuant to Section E hereof upon Conversion of the Debenture or late payment
      of
      the Mandatory Redemption Amount, in the amount of $100 per business day after
      the Delivery Date or Mandatory Redemption Payment Date, as the case may be,
      for
      each $10,000 of Debenture principal amount being converted or redeemed. The
      Company shall pay any payments incurred under this Section in immediately
      available funds upon demand. Furthermore, in addition to any other remedies
      which may be available to the Holder, in the event that the Company fails for
      any reason to effect delivery of the Common Stock by the Delivery Date or make
      payment by the Mandatory Redemption Payment Date, the Holder will be entitled
      to
      revoke all or part of the relevant Notice of Conversion or rescind all or part
      of the notice of Mandatory Redemption by delivery of a notice to such effect
      to
      the Company whereupon the Company and the Holder shall each be restored to
      their
      respective positions immediately prior to the delivery of such notice, except
      that late payment charges described above shall be payable through the date
      notice of revocation or rescission is given to the Company.

     

    E. Mandatory
      Redemption. In the
      event the Company is prohibited from issuing Common Stock, or fails to timely
      deliver Common Stock on a Delivery Date, or upon the occurrence of an Event
      of
      Default (as defined in the Debenture) or for any reason other than pursuant
      to
      the limitations set forth herein, then at the Holder's election, the Company
      must pay to the Holder ten (10) business days after request by the Holder or
      on
      the Delivery Date (if requested by the Holder) a sum of money determined by
      multiplying up to the outstanding Principal Amount (as defined in the Debenture)
      of the Debenture designated by the Holder by 150%, together with accrued but
      unpaid interest thereon ("Mandatory Redemption
      Payment"). 

     

     

     

    
      
               
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    The
      Mandatory Redemption Payment must be received by the Holder on the same date
      as
      the Company Common Stock otherwise deliverable or within ten (10) business
      days
      after request, whichever is sooner ("Mandatory Redemption Payment
      Date"). Upon receipt of the Mandatory Redemption Payment, the
      corresponding Debenture principal and interest will be deemed paid and no longer
      outstanding.  Notwithstanding the foregoing, the Company shall first
      apply against the Mandatory Redemption Payment an amount equal to the
      outstanding amount owed by the Holder to the Company under the Promissory Note,
      if any, and the amount otherwise owed by the Company to the Holder in connection
      with the Mandatory Redemption Payment shall be reduced by the outstanding amount
      owed by the Holder to the Company under the Promissory Note, with the Promissory
      Note deemed paid by Holder to the extent of and with respect to such amount,
      and
      if the amount due from the Company to the Holder in connection with the
      Mandatory Redemption Payment is equal to or greater than the outstanding amount
      owed under the Promissory Note, the Company shall cancel and deem the Promissory
      Note as paid in full in connection with the application of the amount owed
      by
      the Holder to the Company under Promissory Note against the amount otherwise
      owed by the Company to the Holder in connection with the Mandatory Redemption
      Payment.  The Company shall immediately pay in cash to the Holder any
      remaining amount owed by the Company to the Holder in connection with the
      Mandatory Redemption Payment as described herein, after the application of
      the
      outstanding amount owed under the Promissory Note, if any, to such
      obligation.

     

    F.  Buy-In.
      In addition to any
      other rights available to the Holder, if the Company fails to deliver to the
      Holder such Common Stock issuable upon conversion of a Debenture by the Delivery
      Date and if ten (10) days after the Delivery Date the Holder purchases (in
      an
      open market transaction or otherwise) shares of Common Stock to deliver in
      satisfaction of a sale by the Holder of the Common Stock which the Holder
      anticipated receiving upon such conversion (a "Buy-In"), then the Company
      shall pay in cash to the Holder (in addition to any remedies available to or
      elected by the Holder) the amount by which (A) the Holder's total purchase
      price
      (including reasonable brokerage commissions, if any) for the shares of Common
      Stock so purchased exceeds (B) the aggregate principal and/or interest amount
      of
      the Debenture for which such conversion was not timely honored, together with
      interest thereon at a rate of 15% per annum, accruing until such amount and
      any
      accrued interest thereon is paid in full (which amount shall be paid as
      liquidated damages and not as a penalty). For example, if the Holder purchases
      shares of Common Stock having a total purchase price of $11,000 to cover a
      Buy-In with respect to an attempted conversion of $10,000 of Debenture
      principal, the Company shall be required to pay the Holder $1,000, plus
      interest. The Holder shall provide the Company written notice indicating the
      amounts payable to the Holder in respect of the Buy-In.

     

    G. The
      Securities shall be delivered by the Company to the Holder upon the Holder’s
      delivery of the Purchase Price (including the Promissory Note) at the
      Closing.

     

    
      	
              VI.  

            	
              CLOSING
                DATE

            

    

     

    The
      “Closing” shall occur by
      the delivery: (i) to the Holder of the documents evidencing the Debenture and
      all other Documents, and (ii) to the Company the Purchase Price, including
      the
      Promissory Note, and the date on which the Closing occurs shall be referred
      to
      herein as the “Closing
      Date”.

     

     

    
      
           
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              VII.  

            	
              CONDITIONS
                TO THE COMPANY’S OBLIGATIONS

            

    

     

    Holder
      understands that the Company’s obligation to sell the Debenture on the Closing
      Date to Holder pursuant to this Agreement is conditioned upon:

     

    A. Delivery
      by Holder to the Company of the Purchase Price, including the Promissory Note
      evidencing such applicable portion of the Purchase Price;

     

    B. The
      accuracy on the Closing Date of the representations and warranties of Holder
      contained in this Agreement as if made on the Closing Date (except for
      representations and warranties which, by their express terms, speak as of and
      relate to a specified date, in which case such accuracy shall be measured as
      of
      such specified date) and the performance by Holder in all material respects
      on
      or before the Closing Date of all covenants and agreements of Holder required
      to
      be performed by it pursuant to this Agreement on or before the Closing Date;
      and

     

    C. There
      shall not be in effect any law or order, ruling, judgment or writ of any court
      or public or governmental authority restraining, enjoining or otherwise
      prohibiting any of the transactions contemplated by this Agreement.

     

    
      	
              VIII.  

            	
              CONDITIONS
                TO HOLDER’S OBLIGATIONS

            

    

     

    The
      Company understands that Holder’s obligation to purchase the Securities on the
      Closing Date pursuant to this Agreement is conditioned upon:

     

    A. Delivery
      by the Company of the Debenture (I/N/O Holder or I/N/O Holder’s nominee) to
      Holder;

     

    B. The
      accuracy on the Closing Date of the representations and warranties of the
      Company contained in this Agreement as if made on the Closing Date (except
      for
      representations and warranties which, by their express terms, speak as of and
      relate to a specified date, in which case such accuracy shall be measured as
      of
      such specified date) and the performance by the Company in all respects on
      or
      before the Closing Date of all covenants and agreements of the Company required
      to be performed by it pursuant to this Agreement on or before the Closing Date,
      all of which shall be confirmed to Holder by delivery of the certificate of
      the
      chief executive officer of the Company to that effect;

     

    C. The
      Company shall have delivered to the Holder a certificate of the Company executed
      by an officer of the Company, dated as of the Closing, certifying
      the resolutions adopted by the Company’s board of directors authorizing the
      execution of the Documents, the issuance of the Securities, and the transactions
      contemplated hereby, and copies of any required third party consents, approvals
      and filings required in connection with the consummation of the transactions
      contemplated by this Agreement;

     

     

    
      
                  
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    D. There
      not
      having occurred (i) any general suspension of trading in, or limitation on
      prices listed for, the Common Stock on the OTCBB/Pink Sheet, (ii) the
      declaration of a banking moratorium or any suspension of payments in respect
      of
      banks in the United States, (iii) the commencement of a war, armed hostilities
      or other international or national calamity directly or indirectly involving
      the
      United States or any of its territories, protectorates or possessions or
      (iv) in the case of the foregoing existing at the date of this Agreement, a
      material acceleration or worsening thereof;

     

    E. There
      not
      having occurred any event or development, and there being in existence no
      condition, having or which reasonably and foreseeably could have a Material
      Adverse Effect;

     

    F. There
      shall not be in effect any law, order, ruling, judgment or writ of any court
      or
      public or governmental authority restraining, enjoining or otherwise prohibiting
      any of the transactions contemplated by this Agreement;

     

    F. The
      Company shall have
      obtained all consents, approvals or waivers from governmental authorities and
      third persons necessary for the execution, delivery and performance of the
      Documents and the transactions contemplated thereby, all without material cost
      to the Company;

     

    G. Holder
      shall have received such additional documents, certificates, payment,
      assignments, transfers and other deliveries as it or its legal counsel may
      reasonably request and as are customary to effect a closing of the matters
      herein contemplated;

    

    H.
      Delivery by the Company of
      an enforceability opinion with respect to this Agreement and the transactions
      contemplated hereunder from its outside counsel in form and substance
      satisfactory to Holder; and

    

    I.  Delivery
      by the
      Company of a valid waiver of any preemptive rights held by the individuals
      and/or parties listed on Schedule III.A.3 hereto in form and substance
      satisfactory to Holder.

     

    
      	
              IX.  

            	
              SURVIVAL;
                INDEMNIFICATION

            

    

     

    A. The
      representations, warranties and covenants made by each of the Company and Holder
      in this Agreement, the annexes, schedules and exhibits hereto and in each
      instrument, agreement and certificate entered into and delivered by them
      pursuant to this Agreement shall survive the Closing and the consummation of
      the
      transactions contemplated hereby.  In the event of a breach or
      violation of any of such representations, warranties or covenants, the party
      to
      whom such representations, warranties or covenants have been made shall have
      all
      rights and remedies for such breach or violation available to it under the
      provisions of this Agreement or otherwise, whether at law or in equity,
      irrespective of any investigation made by or on behalf of such party on or
      prior
      to the Closing Date.

     

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

     

     

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

     

    2. any
      failure by the Company to perform any of its covenants, agreements, undertakings
      or obligations set forth in this Agreement or the other Documents or any
      instrument, certificate or agreement entered into or delivered by the Company
      pursuant to this Agreement or the other Documents;

     

    3. the
      purchase of the Debenture, the conversion of the Debenture, the payment of
      interest on the Debenture, the consummation of the transactions contemplated
      by
      this Agreement and the other Documents, the use of any of the proceeds of the
      Purchase Price by the Company, the purchase or ownership of any or all of the
      Securities, the performance by the parties hereto of their respective
      obligations hereunder and under the Documents or any claim, litigation,
      investigation, proceedings or governmental action relating to any of the
      foregoing, whether or not Holder is a party thereto; and/or

     

    4. resales
      of the Common Stock by Holder in the manner and as contemplated by this
      Agreement and the Documents;

     

    provided
      however, that the Company shall not indemnify or hold harmless any Holder
      Indemnitee from any Losses that are directly a result of the gross negligence
      or
      willful misconduct of Holder.

     

    C. Promptly
      after receipt by a party seeking indemnification pursuant to this
      Article VIII (an “Indemnified Party”) of written
      notice of any investigation, claim, proceeding or other action in respect of
      which indemnification is being sought (each, a “Claim”), the Indemnified
      Party
      promptly shall notify the Company against whom indemnification pursuant to
      this
      Article VIII is being sought (the “Indemnifying Party”) of the
      commencement thereof, but the omission so to notify the Indemnifying Party
      shall
      not relieve it from any liability that it otherwise may have to the Indemnified
      Party except to the extent that the Indemnifying Party is materially prejudiced
      and forfeits substantive rights or defenses by reason of such
      failure.  In connection with any Claim as to which both the
      Indemnifying Party and the Indemnified Party are parties, the Indemnifying
      Party
      shall be entitled to assume the defense thereof.  Notwithstanding the
      assumption of the defense of any Claim by the Indemnifying Party, the
      Indemnified Party shall have the right to employ separate legal counsel and
      to
      participate in the defense of such Claim, and the Indemnifying Party shall
      bear
      the reasonable fees, out-of-pocket costs and expenses of such separate legal
      counsel to the Indemnified Party if (and only if): (x) the Indemnifying
      Party shall have agreed to pay such fees, out-of-pocket costs and expenses,
      (y) the Indemnified Party and the Indemnifying Party reasonably shall have
      concluded that representation of the Indemnified Party and the Indemnifying
      Party by the same legal counsel would not be appropriate due to actual or,
      as
      reasonably determined by legal counsel to the Indemnified Party, potentially
      differing interests between such parties in the conduct of the defense of such
      Claim, or if there may be legal defenses available to the Indemnified Party
      that
      are in addition to or disparate from those available to the Indemnifying Party
      or (z) the Indemnifying Party shall have failed to employ legal counsel
      reasonably satisfactory to the Indemnified Party within a reasonable period
      of
      time after notice of the commencement of such Claim.  

     

     

     

     

    
      
                  
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    If
      the
      Indemnified Party employs separate legal counsel in circumstances other than
      as
      described in clauses (x), (y) or (z) above, the fees, costs and expenses of
      such
      legal counsel shall be borne exclusively by the Indemnified
      Party.  Except as provided above, the Indemnifying Party shall not, in
      connection with any Claim in the same jurisdiction, be liable for the fees
      and
      expenses of more than one firm of legal counsel for the Indemnified Party
      (together with appropriate local counsel).  The Indemnifying Party
      shall not, without the prior written consent of the Indemnified Party (which
      consent shall not unreasonably be withheld), settle or compromise any Claim
      or
      consent to the entry of any judgment that does not include an unconditional
      release of the Indemnified Party from all liabilities with respect to such
      Claim
      or judgment.

     

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

     

    
      	
              X.  

            	
              GOVERNING
                LAW

            

    

     

    This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of California, without regard to the conflicts of law principles
      of
      such state.

     

    
      	
              XI.  

            	
              SUBMISSION
                TO JURISDICTION

            

    

     

    Each
      of
      the parties hereto consents to the exclusive jurisdiction of the federal courts
      whose districts encompass any part of the City of San Diego or the state courts
      of the State of California sitting in the City of San Diego in connection with
      any dispute arising under this Agreement and the other
      Documents.  Each party hereto hereby irrevocably and unconditionally
      waives, to the fullest extent it may effectively do so, any defense of an
      inconvenient forum or improper venue to the maintenance of such action or
      proceeding in any such court and any right of jurisdiction on account of its
      place of residence or domicile.  Each party hereto irrevocably and
      unconditionally consents to the service of any and all process in any such
      action or proceeding in such courts by the mailing of copies of such process
      by
      registered or certified mail (return receipt requested), postage prepaid, at
      its
      address specified in Article XVII.  Each party hereto agrees that a
      final judgment in any such action or proceeding shall be conclusive and may
      be
      enforced in other jurisdictions by suit on the judgment or in any other manner
      provided by law.

     

     

    
      
                 
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              XII.  

            	
              WAIVER
                OF JURY TRIAL

            

    

     

    TO
      THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY
      KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A
      JURY
      TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
      AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
      SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS.  EACH PARTY
      HERETO (i) CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS
      OR
      ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT,
      IN
      THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii)
      ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
      OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.

     

    
      	
              XIII.  

            	
              COUNTERPARTS;
                EXECUTION

            

    

     

    This
      Agreement may be executed in counterparts, each of which when so executed and
      delivered shall be an original, but both of which counterparts shall together
      constitute one and the same instrument.  A facsimile transmission of
      this signed Agreement shall be legal and binding on both parties
      hereto.

     

    
      	
              XIV.  

            	
              HEADINGS

            

    

     

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

     

    
      	
              XV.  

            	
              SEVERABILITY

            

    

     

    In
      the
      event any one or more of the provisions contained in this Agreement or in the
      other Documents should be held invalid, illegal or unenforceable in any respect,
      the validity, legality and enforceability of the remaining provisions contained
      herein or therein shall not in any way be affected or impaired
      thereby.  The parties shall endeavor in good-faith negotiations to
      replace the invalid, illegal or unenforceable provisions with valid provisions,
      the economic effect of which comes as close as possible to that of the invalid,
      illegal or unenforceable provisions.

     

    
      	
              XVI.  

            	
              ENTIRE
                AGREEMENT; REMEDIES, AMENDMENTS AND
                WAIVERS

            

    

     

    This
      Agreement and the Documents constitute the entire agreement between the parties
      hereto pertaining to the subject matter hereof and supersede all prior
      agreements, understandings, negotiations and discussions, whether oral or
      written, of such parties.  No supplement, modification or waiver of
      this Agreement shall be binding unless executed in writing by both
      parties.  No waiver of any of the provisions of this Agreement shall
      be deemed or shall constitute a waiver of any other provision hereof (whether
      or
      not similar), nor shall such waiver constitute a continuing waiver unless
      otherwise expressly provided.

     

     

    
      
                 
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              XVII.  

            	
              NOTICES

            

    

     

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

     

    A. If
      to the
      Company, to:

    

    Celsius
      Holdings, Inc.

    140
      NE
      4th
      Avenue, Suite C

    Delray
      Beach, Florida 33483

    Telephone:       561-276-2239

    Facsimile:         561-276-2268
       

    

    

     

    B. If
      to
      Holder, to:

     

    Golden
      Gate Investors, Inc.

    7817
      Herschel Avenue, Suite 200

    La
      Jolla,
      California 92037

    Telephone:       858-551-8789

    Facsimile:          858-551-8779

     

    The
      Company or Holder may change the foregoing address by notice given pursuant
      to
      this Article XVII.

     

    
      	
              XVIII.  

            	
              CONFIDENTIALITY

            

    

     

    Each
      of
      the Company and Holder agrees to keep confidential and not to disclose to or
      use
      for the benefit of any third party the terms of this Agreement or any other
      information which at any time is communicated by the other party as being
      confidential without the prior written approval of the other party; provide,
      however, that this provision shall not apply to information which, at the time
      of disclosure, is already part of the public domain (except by breach of this
      Agreement) and information which is required to be disclosed by law (including,
      without limitation, pursuant to Item 601(b)(10) of Regulation S-K under the
      Securities Act and the Exchange Act).

     

    
      	
              XIX.  

            	
              MAXIMUM
                INTEREST RATE

            

    

     

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

     

     

    
      
                
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              XX.  

            	
              ASSIGNMENT

            

    

     

    This
      Agreement shall not be assignable by the Company without the prior written
      consent of the Holder.  The Holder may assign this Agreement upon 10
      days prior written notice to the Company.

    

    

    IN
      WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be
      executed and delivered on the date first above written.

    

    

    Celsius
      Holdings,
      Inc.                                                                                                           
Golden Gate Investors, Inc.

    

    By:   /s/
      Jan
      Norelid                                           
By:    /s/
      Travis W. Huff

    

    Title:   CFO                                                          
      Title:   Portfolio
      Manager

    

    
      

      
        	
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      Page
        19f8k121907a1ex10iv_celsius.htm

    
      Exhibit
        10.4

    

     

     

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

     

    7
      3⁄4 % CONVERTIBLE DEBENTURE

     

    

    Company:
      Celsius Holdings,
      Inc.

    Company
      Address: 140 NE 4th
      Avenue,
      Suite C, Delray Beach, Florida 33483

    Closing
      Date: December 19,
      2007

    Maturity
      Date: December 19,
      2011

    Principal
      Amount:
      $1,500,000

     

    Celsius
      Holdings, Inc., a Nevada corporation, and any successor or resulting corporation
      by way of merger, consolidation, sale or exchange of all or substantially all
      of
      the assets or otherwise (the “Company”), for value
      received, hereby promises to pay to the Holder (as such term is hereinafter
      defined), or such other Person (as such term is hereinafter defined) upon order
      of the Holder, on the Maturity Date (as such term is hereinafter defined),
      the
      Principal Amount (as such term is hereinafter defined), as such sum may be
      adjusted pursuant to Article 3, and to pay interest thereon with such interest
      commencing to accrue as of the date hereof and payable monthly beginning on
      the
      date hereof and such interest shall be paid within three days of the beginning
      of each month that such interest is due, and on the Maturity Date (except that,
      if any such date is not a Business Day, then such payment shall be due on the
      next succeeding Business Day), at the rate of seven and three-quarters percent
      (7 3⁄4 %) per annum (the “Debenture Interest Rate”).
      All interest payable on the Principal Amount of this Debenture shall be
      calculated on the basis of a 360-day year for the actual number of days
      elapsed.  Payment of interest on this Debenture shall be in cash or,
      at the option of the Holder, in shares of Common Stock of the Company valued
      at
      the then applicable Conversion Price (as defined herein).  This
      Debenture may not be prepaid without the written consent of the
      Holder.

     

    ARTICLE
      1

     

    DEFINITIONS

     

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

     

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

     

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

     

     

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    (xii) “Current
      Market Price” on any
      date of determination means the closing price of a Common Share on such day
      as
      reported in the “pink sheets” through the Interdealer Trading Quotation System;
      provided, if such security is not traded on the over the counter market via
      the
      pink sheets, then the closing price on the NASDAQ OTCBB Exchange; provided further,
      that, if such security is not listed or admitted to trading on the NASDAQ OTCBB,
      as reported on the principal national security exchange or quotation system
      on
      which such security is quoted or listed or admitted to trading, or, if not
      quoted or listed or admitted to trading on any national securities exchange
      or
      quotation system, the closing bid price of such security on the over-the-counter
      market on the day in question as reported by Bloomberg LP or a similar generally
      accepted reporting service, as the case may be.

     

     

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

     

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

     

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

     

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

     

    (xvii) “Interest
      Payment Due Date”
      has the meaning set forth in the opening paragraph of this
      Debenture.

     

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

     

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

     

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

     

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

     

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

     

    (xxiii) “Principal
      Amount” means, for
      any date of calculation, the principal sum set forth in the first paragraph
      of
      this Debenture (but only such principal amount as to which the Holder has (a)
      actually advanced, and (b) not theretofore furnished a Conversion Notice in
      compliance with Section 3.2).

     

    (xxiv) “Promissory
      Note” means that
      certain Secured Promissory Note in the principal amount of $1,250,000 of even
      date herewith issued by Golden Gate Investors, Inc. to Celsius Holdings, Inc.,
      as the same may be amended from time to time.

     

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

     

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

     

     

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

     

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

     

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

     

    (xxx) “Volume
      Weighted Average
      Price”  per Common Share means the volume weighted average
      price of the Common Shares during any Trading Day as reported in the “pink
      sheets” through the Interdealer Trading Quotation System; provided, if such
      security is not traded on the over the counter market via the pink sheets,
      then
      the volume weighted average price on the NASDAQ OTCBB; provided further,
      that, if such security is not listed or admitted to trading on the NASDAQ OTCBB,
      as reported on the principal national security exchange or quotation system
      on
      which such security is quoted or listed or admitted to trading, or, if not
      quoted or listed or admitted to trading on any national securities exchange
      or
      quotation system, the volume weighted average price of the Common Shares during
      any Trading Day on the over-the-counter market as reported by Bloomberg LP
      or a
      similar generally accepted reporting service, as the case may be.

     

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

     

    ARTICLE
      2

     

    EXCHANGES,
      TRANSFER AND REPAYMENT

     

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

     

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

     

     

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

     

    SECTION
      2.4 Repayment
      at
      Maturity.  At the Maturity Date, the Company shall repay the
      outstanding Principal Amount of this Debenture in whole in cash, together with
      all accrued and unpaid interest thereon, in cash, to the Maturity
      Date.  The Company shall first apply against such amount due on the
      Maturity Date an amount equal to the outstanding amount owed by the Holder
      to
      the Company under the Promissory Note, if any, and the amount otherwise owed
      by
      the Company to the Holder in connection with the maturity of this Debenture
      shall be reduced by the outstanding amount owed by the Holder to the Company
      under the Promissory Note, with the Promissory Note deemed paid by Holder to
      the
      extent of and with respect to such amount, and if the amount due from the
      Company to the Holder in connection with the maturity of this Debenture is
      equal
      to or greater than the outstanding amount owed under the Promissory Note, the
      Company shall cancel and deem the Promissory Note as paid in full in connection
      with the application of the amount owed by the Holder to the Company under
      Promissory Note against the amount otherwise owed by the Company to the Holder
      hereunder.  The Company shall immediately pay in cash to the Holder
      any remaining amount owed by the Company to the Holder in connection with the
      maturity of this Debenture as described herein, after the application of the
      outstanding amount owed under the Promissory Note, if any, to such
      obligation.

     

    ARTICLE
      3

     

    CONVERSION
      OF DEBENTURE

     

    SECTION
      3.1 Conversion;
      Conversion
      Price; Valuation Event.

     

    At
      the
      option of the Holder, this Debenture may be converted, either in whole or in
      part, up to the full Principal Amount hereof into Common Shares (calculated
      as
      to each such conversion to the nearest 1/100th of a share), at any time and
      from
      time to time on any Business Day, subject to compliance with Section 3.2. The
      number of Common Shares into which this Debenture may be converted is equal
      to
      the dollar amount of the Debenture being converted divided by the Conversion
      Price. The “Conversion
      Price” shall be equal to the lesser of (i) $1.00, or (ii) 80% of the
      average of the 3 lowest Volume Weighted Average Prices during the 20 Trading
      Days prior to Holder’s election to convert (the percentage figure being a “Discount Multiplier”). The
      Company reserves the right to increase the number of Trading Days in clause
      (ii)
      above, as it deems appropriate.

     

     

    
      
                
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    If
      the
      Holder elects to convert a portion of the Debenture and, on the day that the
      election is made, the Volume Weighted Average Price is below $0.20, the Company
      shall have the right to prepay that portion of the Debenture that Holder elected
      to convert, plus any accrued and unpaid interest, at 150% of such amount. In
      the
      event that the Company elects to prepay that portion of the Debenture, Holder
      shall have the right to withdraw its Conversion Notice.

     

    Notwithstanding
      the foregoing, prior to the conversion by Holder of any Principal Amount of
      this
      Debenture that is represented by all or a portion of the principal amount
      outstanding under the Promissory Note and has not otherwise been advanced in
      cash to the Company prior to such conversion, the Holder shall prepay such
      portion of the outstanding principal amount of the Promissory Note that is
      represented by such conversion under this Debenture, such that prior to the
      conversion of the principal amount of this Debenture, the Holder shall have
      paid
      an amount to the Company in cash equal to the portion of the principal amount
      of
      this Debenture that is to be so converted.

     

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

     

     

    
      
                
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    (b) If,
      at
      any time after the date of this Debenture, (i) the Company challenges, disputes
      or denies the right of the Holder hereof to effect the conversion of this
      Debenture into Common Shares or otherwise dishonors or rejects any Conversion
      Notice delivered in accordance with this Section 3.2 or (ii) any third party
      who
      is not and has never been an Affiliate of the Holder commences any lawsuit
      or
      legal proceeding or otherwise asserts any claim before any court or public
      or
      governmental authority which seeks to challenge, deny, enjoin, limit, modify,
      delay or dispute the right of the Holder hereof to effect the conversion of
      this
      Debenture into Common Shares, then the Holder shall have the right, but not
      the
      obligation, by written notice to the Company, to require the Company to promptly
      redeem this Debenture for cash at one hundred fifty percent (150%) of the
      Principal Amount thereof, together with all accrued and unpaid interest thereon
      to the date of redemption.  Under any of the circumstances set forth
      above, the Company shall be responsible for the payment of all costs and
      expenses of the Holder, including reasonable legal fees and expenses, as and
      when incurred in defending itself in any such action or pursuing its rights
      hereunder (in addition to any other rights of the Holder).

     

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

     

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

     

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

     

    (i) Reclassification,
      Etc.  In case the Company shall reorganize its capital,
      reclassify its capital stock, consolidate or merge with or into another Person
      (where the Company is not the survivor or where there is a change in or
      distribution with respect to the Common Stock of the Company), sell, convey,
      transfer or otherwise dispose of all or substantially all its property, assets
      or business to another Person, or effectuate a transaction or series of related
      transactions in which more than fifty percent (50%) of the voting power of
      the
      Company is disposed of (each, a “Fundamental Corporate
      Change”) and, pursuant to the terms of such Fundamental Corporate Change,
      shares of common stock of the successor or acquiring corporation, or any cash,
      shares of stock or other securities or property of any nature whatsoever
      (including warrants or other subscription or purchase rights) 

     

     

     

    
      
                
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    in
      addition to or in lieu of common stock of the successor or acquiring corporation
      (“Other Property”) are
      to be received by or distributed to the holders of Common Stock of the Company,
      then the Holder of this Debenture shall have the right thereafter, at its sole
      option, to (x) require the Company to prepay this Debenture for cash at one
      hundred fifty percent (150%) of the Principal Amount thereof, together with
      all
      accrued and unpaid interest thereon to the date of prepayment, (y) receive
      the number of shares of common stock of the successor or acquiring corporation
      or of the Company, if it is the surviving corporation, and Other Property as
      is
      receivable upon or as a result of such Fundamental
      Corporate Change by a holder of the number of shares of Common Stock into which
      the outstanding portion of this Debenture may be converted at the Conversion
      Price applicable immediately prior to such Fundamental Corporate Change or
      (z) require the Company, or such successor, resulting or purchasing
      corporation, as the case may be, to, without benefit of any additional
      consideration therefor, execute and deliver to the Holder a debenture with
      substantial identical rights, privileges, powers, restrictions and other terms
      as this Debenture in an amount equal to the amount outstanding under this
      Debenture immediately prior to such Fundamental Corporate Change.  For
      purposes hereof, “common stock
      of the successor or acquiring corporation” shall include stock of such
      corporation of any class which is not preferred as to dividends or assets over
      any other class of stock of such corporation and which is not subject to
      prepayment and shall also include any evidences of indebtedness, shares of
      stock
      or other securities which are convertible into or exchangeable for any such
      stock, either immediately or upon the arrival of a specified date or the
      happening of a specified event and any warrants or other rights to subscribe
      for
      or purchase any such stock.  The foregoing provisions shall similarly
      apply to successive Fundamental Corporate Changes.

     

    SECTION
      3.5 Certain
      Conversion
      Limits.

     

    The
      Company shall not effect any conversion of this Debenture, and a Holder shall
      not have the right to convert any portion of this Debenture, to the extent
      that
      after giving effect to the conversion, as set forth on the applicable Conversion
      Notice, such Holder (together with such Holder’s Affiliates, and any other
      person or entity acting as a group together with such Holder or any of such
      Holder’s Affiliates) would beneficially own in excess of the Beneficial
      Ownership Limitation (as defined below).  For purposes of the
      foregoing sentence, the number of shares of Common Stock beneficially owned
      by
      such Holder and its Affiliates shall include the number of shares of Common
      Stock issuable upon conversion of this Debenture with respect to which such
      determination is being made, but shall exclude the number of shares of Common
      Stock which are issuable upon (A) conversion of the remaining, unconverted
      principal amount of this Debenture beneficially owned by such Holder or any
      of
      its Affiliates and (B) exercise or conversion of the unexercised or unconverted
      portion of any other securities of the Company subject to a limitation on
      conversion or exercise analogous to the limitation contained herein (including,
      without limitation, any other Debentures or warrants to purchase shares of
      the
      Company’s Common Stock) beneficially owned by such Holder or any of its
      Affiliates.  Except as set forth in the preceding sentence, for
      purposes of this Section 3.5, beneficial ownership shall be calculated in
      accordance with Section 13(d) of the Exchange Act and the rules and regulations
      promulgated thereunder.  To the extent that the limitation contained
      in this Section 3.5 applies, the determination of whether this Debenture is
      convertible (in relation to other securities owned by such Holder together
      with
      any Affiliates) and of which principal amount of this Debenture is convertible
      shall be in the sole discretion of such Holder, and the submission of a
      Conversion Notice shall be deemed to be such Holder’s determination of whether
      this Debenture may be converted (in relation to other securities owned by such
      Holder together with any Affiliates) and which principal amount of this
      Debenture is convertible, in each case subject to such aggregate percentage
      limitations. 

     

     

    
      
                
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     To
      ensure compliance with this restriction, each Holder will be deemed to represent
      to the Company each time it delivers a Conversion Notice that such Conversion
      Notice has not violated the restrictions set forth in this paragraph and the
      Company shall have no obligation to verify or confirm the accuracy of such
      determination.  In addition, a determination as to any group status as
      contemplated above shall be determined in accordance with Section 13(d) of
      the
      Exchange Act and the rules and regulations promulgated
      thereunder.  For purposes of this Section 3.5, in determining the
      number of outstanding shares of Common Stock, a Holder may rely on the number
      of
      outstanding shares of Common Stock provided to the Holder in writing by the
      Company after Holder makes such request or in the event that the Company files,
      any of the following with the Securities and Exchange Commission, the most
      recent of the following: (A) the Company's most recent Form 10-QSB or Form
      10-KSB, as the case may be, (B) a more recent public announcement by the
      Company; or (C) a more recent notice by the Company or the Company’s transfer
      agent setting forth the number of shares of Common Stock
      outstanding.  Upon the written or oral request of a Holder, the
      Company shall within two Trading Days confirm orally and in writing to such
      Holder the number of shares of Common Stock then outstanding on the records
      of
      the Company as of the date of the request.  In any case, the number of
      outstanding shares of Common Stock shall be determined after giving effect
      to
      the conversion or exercise of securities of the Company, including this
      Debenture, by such Holder or its Affiliates since the date as of which such
      number of outstanding shares of Common Stock was reported.  The “Beneficial Ownership
      Limitation” shall be 4.99% of the number of shares of the Common Stock
      outstanding immediately after giving effect to the issuance of shares of Common
      Stock issuable upon conversion of this Debenture held by the
      Holder.  The Beneficial Ownership Limitation provisions of this
      Section 3.5 may be waived by such Holder, at the election of such Holder, upon
      not less than 61 days’ prior notice to the Company, to, at the sole discretion
      of the Holder, either change the Beneficial Ownership Limitation to (i) 9.99%
      of
      the number of shares of the Common Stock outstanding immediately after giving
      effect to the issuance of shares of Common Stock upon conversion of the
      Debenture held by the Holder and the provisions of this Section 3.5 shall
      continue to apply, or (ii) remove any Beneficial Ownership Limitation under
      this
      Debenture.  The provisions of this paragraph shall be construed and
      implemented in a manner otherwise than in strict conformity with the terms
      of
      this Section 3.5 to correct this paragraph (or any portion hereof) which may
      be
      defective or inconsistent with the intended Beneficial Ownership Limitation
      herein contained or to make changes or supplements necessary or desirable to
      properly give effect to such limitation.  If any court of competent
      jurisdiction shall determine that the foregoing limitation is ineffective to
      prevent a Holder from being deemed the beneficial owner of more than 9.99%
      of
      the then outstanding shares of Common Stock, then the Company shall prepay
      such
      portion of this Debenture as shall cause such Holder not to be deemed the
      beneficial owner of more than 9.99% of the then outstanding shares of Common
      Stock.  Upon such determination by a court of competent jurisdiction,
      the Holder shall have no interest in or rights under such portion of the
      Debenture.  Any and all interest paid on or prior to the date of such
      determination shall be deemed interest paid on the remaining portion of this
      Debenture held by the Holder.  Such prepayment shall be for cash at a
      prepayment price of one hundred fifty percent (150%) of the Principal Amount
      thereof, together with all accrued and unpaid interest thereon to the date
      of
      prepayment.  The limitations contained in this paragraph shall apply
      to a successor holder of this Debenture.

     

     

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

     

    ARTICLE
      4

     

    STATUS;
      RESTRICTIONS ON TRANSFER

     

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

     

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

     

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

     

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

     

     

     

    
      
                
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    ARTICLE
      5

     

    COVENANTS

     

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

     

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

     

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

     

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

     

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

     

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

     

     

    
      
                 
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    ARTICLE
      6

     

    EVENTS
      OF DEFAULT; REMEDIES

     

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

     

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

     

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

     

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

     

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

     

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

    (x) the
      Company shall default (giving effect to any applicable grace period) in the
      payment of principal or interest as and when the same shall become due and
      payable, under any indebtedness, individually or in the aggregate, of more
      than
      One Hundred Thousand Dollars ($100,000); or

     

    (xi) the
      Common Stock shall trade on the Trading Market at a price per share that is
      $0.02 per share or lower at any time during the term of this Debenture (as adjusted for any stock splits,
      stock
      dividends, combinations, subdivisions, recapitalizations or the
      like).

     

     

    
      
                 
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    SECTION
      6.2 Acceleration
      of Maturity;
      Rescission and Annulment.  If an Event of Default occurs and is
      continuing, provided however, that once an Event of Default occurs as described
      in clause (xi) of Section 6.1, such Event of Default will not be cured by the
      subsequent trading of the Common Stock at a price greater than that specified
      in
      such clause, then and in every such case the Holder may, in Holder’s sole and
      absolute discretion, by a notice in writing to the Company, rescind any
      outstanding Conversion Notice and declare that any or all amounts owing or
      otherwise outstanding under this Debenture are immediately due and payable
      and
      upon any such declaration this Debenture or such portion thereof, as applicable,
      shall become immediately due and payable in cash at a price of one hundred
      fifty
      percent (150%) of the Principal Amount thereof, together with all accrued and
      unpaid interest thereon to the date of payment; provided, however,
      in the case
      of any Event of Default described in clause (xi) of Section 6.1 such amount
      shall become immediately due and payable in cash at a price of one hundred
      ten
      percent (110%) of the Principal Amount thereof, together with all accrued and
      unpaid interest thereon to the date of payment; provided further, in
      the case of any Event of Default described in clauses (iii), (iv), (v) or (vii)
      of Section 6.1, all amounts owing or otherwise outstanding under this Debenture
      automatically shall become immediately due and payable without the necessity
      of
      any notice or declaration as aforesaid.  In the event that the Company
      is obligated to pay any amount to the Holder in connection with an acceleration
      of the maturity of this Debenture as set forth herein, the Company shall first
      apply against such amount an amount equal to the outstanding amount owed by
      the
      Holder to the Company under the Promissory Note, if any, and the amount
      otherwise owed by the Company to the Holder in connection with an acceleration
      of the maturity of this Debenture shall be reduced by the outstanding amount
      owed by the Holder to the Company under the Promissory Note, with the Promissory
      Note deemed paid by Holder to the extent of and with respect to such amount,
      and
      if the amount due from the Company to the Holder in connection with an
      acceleration of the maturity of this Debenture is equal to or greater than
      the
      outstanding amount owed under the Promissory Note, the Company shall cancel
      and
      deem the Promissory Note as paid in full in connection with the application
      of
      the amount owed by the Holder to the Company under Promissory Note against
      the
      amount otherwise owed by the Company to the Holder hereunder.  The
      Company shall immediately pay in cash to the Holder any remaining amount owed
      by
      the Company to the Holder in connection with the acceleration of the maturity
      of
      this Debenture as described herein, after the application of the outstanding
      amount owed under the Promissory Note, if any, to such obligation.

     

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

     

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

     

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

     

     

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

     

    SECTION
      6.7  Payment
      of Certain Amounts. Whenever pursuant to this Debenture the Company
      is required to pay an amount in excess of the Principal Amount plus accrued
      and
      unpaid interest, the Company and the Holder agree that the actual damages to
      the
      Holder from the receipt of cash payment on this Debenture may be difficult
      to
      determine and the amount to be so paid by the Company represents stipulated
      damages and not a penalty and is intended to compensate the Holder in part
      for
      loss of the opportunity to convert this Debenture and to earn a return from
      the
      sale of shares of Common Stock acquired upon conversion of this Debenture at
      a
      price in excess of that price paid for such shares pursuant to this Debenture.
      The Company and the Holder hereby agree that such amount of stipulated damages
      is not disproportionate to the possible loss to the Holder from the receipt
      of a
      cash payment without the opportunity to convert this Debenture into shares
      of
      Common Stock.

     

    ARTICLE
      7

     

    MISCELLANEOUS

     

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

     

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

     

     

     

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

     

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

     

    (1)           
      If to the Company, to:

    

    Celsius
      Holdings, Inc.

    140
      NE
      4th
      Avenue, Suite C

    Delray
      Beach, Florida 33483

    Telephone:        561-276-2239

    Facsimile:           561-276-2268

    

    (2)           
      If to the Holder, to:

    Golden
      Gate Investors, Inc.

    7817
      Herschel Avenue, Suite 200

    La
      Jolla,
      California 92037

    Telephone:  
      858-551-8789

    Facsimile:     
      858-551-8779

     

    Each
      of
      the Holder or the Company may change the foregoing address by notice given
      pursuant to this Section 7.4.

     

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

     

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

     

     

     

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

     

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

     

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

     

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

     

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

     

    [REMAINDER
      OF PAGE INTENTIONALLY BLANK]

     

     

     

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

     

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

    

    Celsius
      Holdings, Inc.

     

    By:   /s/
      Jan
      Norelid                                                             

    Name:  Jan
      Norelid                                                             

    Title:   
      CFO                                                            

     

    

    

    
      
                 
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    EXHIBIT A

     

    DEBENTURE
      CONVERSION
      NOTICE

    

    
      	
              TO:

            	
              Celsius
                Holdings, Inc. 

            

    

    140
      NE
      4th
      Avenue, Suite C

    Delray
      Beach, Florida 33483

    Facsimile:    
      561-276-2268

    

     

    The
      undersigned owner of the Convertible Debenture due December ___, 2011 (the
“Debenture”) issued by
      Celsius Holdings, Inc. (the “Company”) hereby irrevocably
      exercises its option to convert $__________ Principal Amount of the Debenture
      into shares of Common Stock in accordance with the terms of the
      Debenture.  The undersigned hereby instructs the Company to convert
      the portion of the Debenture specified above into shares of Common Stock Issued
      at Conversion in accordance with the provisions of Article 3 of the
      Debenture.  The undersigned directs that the Common Stock and
      certificates therefor deliverable upon conversion, the Debenture reissued in
      the
      Principal Amount not being surrendered for conversion hereby, [the check or
      shares of Common Stock in payment of the accrued and unpaid interest thereon
      to
      the date of this Notice,] together with any check in payment for fractional
      Common Stock, be registered in the name of and/or delivered to the undersigned
      unless a different name has been indicated below.  All capitalized
      terms used and not defined herein have the respective meanings assigned to
      them
      in the Debenture.  The conversion pursuant hereto shall be deemed to
      have been effected at the date and time specified below, and at such time the
      rights of the undersigned as a Holder of the Principal Amount of the Debenture
      set forth above shall cease and the Person or Persons in whose name or names
      the
      Common Stock Issued at Conversion shall be registered shall be deemed to have
      become the holder or holders of record of the Common Shares represented thereby
      and all voting and other rights associated with the beneficial ownership of
      such
      Common Shares shall at such time vest with such Person or Persons.

    
       

    

    Date
      and
      time:  __________________

     

    ______________________________

     

    By:
      ___________________________

     

    Title:
      _________________________

     

    Fill
      in
      for registration of Debenture:

    Please
      print name and address

    (including
      ZIP code number):

     

    

     

    
      A-1

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