Document:

EX 10.1

    EXHIBIT
      10.1

     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of January 17, 2007 among Solomon Technologies, Inc., a Delaware
      corporation (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”),
      and
      Rule 506 promulgated thereunder, the Company desires to issue and sell to
each
      Purchaser, and each Purchaser, severally and not jointly, desires to purchase
      from the Company, securities of the Company as more fully described in this
      Agreement.

     

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration, the receipt and adequacy of
      which
      are hereby acknowledged, the Company and each Purchaser agree as
      follows:

     

    ARTICLE
      I.

    DEFINITIONS

     

    1.1 Definitions.
      In
      addition to the terms defined elsewhere in this Agreement: (a) capitalized
      terms
      that are not otherwise defined herein have the meanings given to such terms
      in
      the Debentures (as defined herein), and (b) the following terms have the
      meanings set forth in this Section 1.1:

     

    “Action”
shall
      have the meaning ascribed to such term in Section 3.1(j).

     

    “Affiliate”
means
      any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by or is under common control with a Person, as such
      terms are used in and construed under Rule 144 under the Securities
      Act.
      With
      respect to a Purchaser, any investment fund or managed account that is managed
      on a discretionary basis by the same investment manager as such Purchaser will
      be deemed to be an Affiliate of such Purchaser.

     

    “Business
      Day”
means
      any day except Saturday, Sunday, any day which shall be a federal legal holiday
      in the United States or any day on which banking institutions in the State
      of
      New York are authorized or required by law or other governmental action to
      close.

     

    “Closing”
means
      the closing of the purchase and sale of the Securities pursuant to Section
      2.1.

     

    “Closing
      Date”
means
      the Trading Day when all of the Transaction Documents have been executed and
      delivered by the applicable parties thereto, and all conditions precedent to
      (i)
      the Purchasers’ obligations to pay the Subscription Amount and (ii) the
      Company’s obligations to deliver the Securities have been satisfied or
      waived.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock of the Company, par value $0.001 per share, and any other
      class
      of securities into which such securities may hereafter be reclassified or
      changed into.

     

    “Common
      Stock Equivalents”
means
      any securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire at any time Common Stock, including, without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exercisable or exchangeable for, or otherwise
      entitles the holder thereof to receive, Common Stock.

     

    “Company
      Counsel”
means
      Davis & Gilbert LLP, with offices located at 1740 Broadway, New York, NY
      10019.

     

    “Conversion
      Price”
shall
      have the meaning ascribed to such term in the Debentures.

     

    “Debentures”
means
      the Variable Rate Self-Liquidating Senior Secured Convertible Debentures due,
      subject to the terms therein, 14 months from their date of issuance, issued
      by
      the Company to the Purchasers hereunder, in the form of Exhibit
      A
      attached
      hereto.

     

    “Disclosure
      Request”
shall
      have the meaning ascribed to such term in Section 4.6(b).

     

    “Disclosure
      Schedules”
shall
      have the meaning ascribed to such term in Section 3.1.

     

    “Effective
      Date”
means
      the date that the initial Registration Statement filed by the Company pursuant
      to the Registration Rights Agreement is first declared effective by the
      Commission.

     

    “Escrow
      Agreement”
shall
      have the meaning ascribed to such term in Section 2.4.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers
      or
      directors of the Company pursuant to any stock or option plan duly adopted
      for
      such purpose by a majority of the non-employee members of the Board of Directors
      of the Company or a majority of the members of a committee of non-employee
      directors, (b) up to, in the aggregate, 250,000 shares of Common Stock or
      options (subject to reverse and forward stock splits and the like) during any
      12
      month period issued to the officers, directors or employees of the Company
      or
      its Subsidiaries and approved by a majority of the members the Board of
      Directors of the Company, (c) up to, in the aggregate, $200,000 of Common Stock
      during any 6 month period approved by a majority of the members the Board of
      Directors of the Company, (d) securities upon the exercise or exchange of or
      conversion of any Securities issued hereunder and/or other securities
      exercisable or exchangeable for or convertible into shares of Common Stock
      issued and outstanding on the date of this Agreement (“Derivative
      Securities”),
      provided that the issuance of any additional securities as a result of any
      amendment, reset or adjustment (including resets and adjustments required
      pursuant to the terms of the Derivative Securities as in existence on the date
      hereof) of such Derivative Securities (other than pursuant to reverse and
      forward stock splits and the like) since the date of this Agreement shall not
      be
      exempt, (e) securities issued pursuant to acquisitions or strategic transactions
      approved by a majority of the disinterested directors of the Company, provided
      that any such issuance shall only be to a Person which is, itself or through
      its
      subsidiaries, an operating company in a business synergistic with the business
      of the Company and in which the Company receives benefits in addition to the
      investment of funds, but shall not include a transaction in which the Company
      is
      issuing securities primarily for the purpose of raising capital or to an entity
      whose primary business is investing in securities and (f) up to 160,000 shares
      of Common Stock to be issued to Ardour Capital Investments LLC or its designees
      in partial consideration for its services to the Company in connection with
      the
      transactions contemplated by this Agreement. Notwithstanding anything herein
      or
      in any other Transaction Document to the contrary and consistent with clause
      (d)
      above, it is expressly agreed that any amendments, adjustments or resets that
      result in future issuances of Common Stock or Common Stock Equivalents pursuant
      to that certain Securities Purchase Agreement, dated August 17, 2006, by and
      among the Company, Integrated Power Systems LLC, Power Designs Inc., The Vantage
      Partners LLC, Technipower LLC and the other parties listed on the signature
      pages thereto, or pursuant to any other agreements or documents entered into
      or
      issued in connection therewith, shall not be an Exempt
      Issuance.

     

    
      
        
        

      

      
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    “FWS”
means
      Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
      Suite 2620, New York, New York 10170-0002.

     

    “GAAP”
shall
      have the meaning ascribed to such term in Section 3.1(h).

     

    “Indebtedness”
shall
      have the meaning ascribed to such term in Section 3.1(aa).

     

    “Intellectual
      Property Rights”
shall
      have the meaning ascribed to such term in Section 3.1(o).

     

    “Legend
      Removal Date”
shall
      have the meaning ascribed to such term in Section 4.1(c). 

     

    “Liens”
means
      a
      lien, charge, security interest, encumbrance, right of first refusal, preemptive
      right or other restriction. 

     

    “Material
      Adverse Effect”
shall
      have the meaning assigned to such term in Section 3.1(b).

     

    “Material
      Permits”
shall
      have the meaning ascribed to such term in Section 3.1(m).

     

    “Maximum
      Rate”
shall
      have the meaning ascribed to such term in Section 5.17.

     

    “Participation
      Maximum”
shall
      have the meaning ascribed to such term in Section 4.12(a). 

     

    “Person”
means
      an individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

     

    
      
        
        

      

      
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    “Pre-Notice”
shall
      have the meaning ascribed to such term in Section 4.12(b). 

     

    “Proceeding”
means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.10.

     

    “Redemption
      and Conversion Agreement”
shall
      have the meaning ascribed to such term in Section 2.2(a)(vii).

     

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated the date hereof, among the Company
      and
      the Purchasers, in the form of Exhibit
      B
      attached
      hereto.

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale of the Underlying Shares by each
      Purchaser as provided for in the Registration Rights Agreement.

     

    “Required
      Approvals”
shall
      have the meaning ascribed to such term in Section 3.1(e).

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares issuable upon exercise or conversion
      in full of all Warrants and Debentures (including Underlying Shares issuable
      as
      payment of interest), ignoring any conversion or exercise limits set forth
      therein, and assuming that the Conversion Price is at all times on and after
      the
      date of determination 90% of the then Conversion Price on the Trading Day
      immediately prior to the date of determination.

     

    “Rule
      144”
means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “SEC
      Reports”
shall
      have the meaning ascribed to such term in Section 3.1(h).

     

    “Securities”
means
      the Debentures, the Warrants, the Warrant Shares and the Underlying
      Shares.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated hereunder.

     

    “Security
      Agreement”
means
      the Security Agreement, dated the date hereof, among the Company and the
      Purchasers, in the form of Exhibit
      E
      attached
      hereto.

     

    
      
        
        

      

      
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    “Security
      Documents”
shall
      mean the Security Agreement, the form of Subsidiary Guarantee and any other
      documents and filing required thereunder in order to grant the Purchasers a
      first priority security interest in the assets of the Company and the
      Subsidiaries as provided in the Security Agreement, including all UCC-1 filing
      receipts. 

     

    “Short
      Sales”
means
      all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
      Act (but shall not be deemed to include the location and/or reservation of
      borrowable shares of Common Stock). 

     

    “Subscription
      Amount”
      means,
      as
      to each Purchaser, the aggregate amount
      to be
      paid for Debentures and Warrants purchased hereunder as specified opposite
      such
      Purchaser’s name on Schedule
      1
      hereto
      and under the heading “Subscription Amount”, in United States dollars and in
      immediately available funds.

     

    “Subsequent
      Financing”
shall
      have the meaning ascribed to such term in Section 4.12.

     

    “Subsequent
      Financing Notice”
shall
      have the meaning ascribed to such term in Section 4.12. 

     

    “Subsidiary”
means
      any subsidiary of the Company as set forth on Schedule
      3.1(a).

     

    “Subsidiary
      Guarantee”
means
      the Subsidiary Guarantee, dated the date hereof, by certain Subsidiaries in
      favor of the Purchasers, in the form of Exhibit
      F
      attached
      hereto.

     

    “Town
      Creek”
means
      the Company’s Subsidiary Town Creek Industries Inc., a Maryland
      corporation.

     

    “Trading
      Day”
means
      a
      day on which the Common Stock is traded on a Trading Market.

     

    “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the American Stock Exchange, the Nasdaq
      Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
      the
      New York Stock Exchange or the OTC Bulletin Board.

     

    “Transaction
      Documents”
means
      this Agreement, the Debentures, the Warrants, the Registration Rights Agreement,
      the Security Agreement, the Subsidiary Guarantee and any other documents or
      agreements executed in connection with the transactions contemplated
      hereunder.

     

    “Transfer
      Agent”
means
      Computershare Trust Company, Inc., with a mailing address of 350 Indiana Street,
      #800 and a facsimile number of (303) 262-0700, and any successor transfer agent
      of the Company.

     

    
      
        
        

      

      
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    “Underlying
      Shares”
means
      the shares of Common Stock issued and issuable upon conversion or redemption
      of
      the Debentures and upon exercise of the Warrants and issued and issuable in
      lieu
      of the cash payment of interest on the Debentures in accordance with the terms
      of the Debentures.

     

    “Variable
      Rate Transaction”
      shall
      have the meaning ascribed to such term in Section 4.13(b).

     

    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
      from
      9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the
      OTC Bulletin Board is not a Trading Market, the volume weighted average price
      of
      the Common Stock for such date (or the nearest preceding date) on the OTC
      Bulletin Board; (c) if the Common Stock is not then listed or quoted on the
      OTC
      Bulletin Board and if prices for the Common Stock are then reported in the
“Pink
      Sheets” published by Pink Sheets, LLC (or a similar organization or agency
      succeeding to its functions of reporting prices), the most recent bid price
      per
      share of the Common Stock so reported; or (d) in all other cases, the fair
      market value of a share of Common Stock as determined by an independent
      appraiser selected in good faith by the Company and reasonably acceptable to
      the
      Holder, the fees and expenses of which shall be paid by the
      Company.

     

    “Warrants”
means
      collectively the Common Stock purchase warrants delivered to the Purchasers
      at
      the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
      be
      exercisable immediately and have a term of exercise equal to 5 years, in the
      form of Exhibit C
      attached
      hereto.

     

    “Warrant
      Shares”
means
      the shares of Common Stock issuable upon exercise of the Warrants.

     

    ARTICLE
      II.

    PURCHASE
      AND SALE

     

    2.1 Closing;
      Escrow.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein,
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and each Purchaser, severally
      and not jointly, agrees to purchase the principal amount of the Debentures
      and a
      Warrant to purchase the number of Warrant Shares, set forth opposite such
      Purchaser’s name on Schedule 1 hereto, which shall not exceed, in the aggregate,
      $6,000,000. Each Purchaser shall deliver to the Company, via wire transfer
      or a
      certified check, immediately available funds equal to its Subscription Amount
      and the Company shall deliver to each Purchaser its respective Debenture and
      a
      Warrant, and the Company and each Purchaser shall deliver the other items set
      forth in Section 2.2 deliverable at the Closing; provided, that a particular
      Purchaser’s obligation to deliver funds equal to its Subscription Amount shall
      be deemed satisfied by such Purchaser’s deposit of the applicable Subscription
      Amount into the Escrow Account and Company Counsel’s disbursement of escrowed
      funds in accordance with the Escrow Agreement, as contemplated by Section 2.4
      below. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3,
      the Closing shall occur at the offices of FWS or such other location as the
      parties shall mutually agree.

    
      
        
        

      

      
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    2.2  Deliveries.

     

    (a) On
      the
      Closing Date, the Company shall deliver or cause to be delivered to each
      Purchaser the following:

     

    
      
        (i) 
          this
          Agreement duly executed by the Company;

      

    

     

    (ii) a
      legal
      opinion of Company Counsel, in substantially the form of Exhibit
      D
      attached
      hereto;

     

    (iii) a
      Debenture with a principal amount equal to such Purchaser’s Subscription Amount,
      registered in the name of such Purchaser;

     

    (iv) a
      Warrant
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 75% of such Purchaser’s Subscription Amount divided by
      $2.00 with
      an
      exercise price equal to $2.00 subject
      to adjustment therein;

    

    (v) the
      Security Agreement, duly executed by the Company along with all of the Security
      Documents duly executed by the parties thereto;

     

    (vi) the
      Lock-up Agreements in the form of Exhibit
      G
      attached
      hereto duly executed by the Company and Pinetree (Barbados), with respect to
      all
      shares held thereby, including but not limited to, 5,421,522 shares of Common
      Stock of which it is the record owner, Power Designs, Inc., with respect to
      all
      shares held thereby, including but not limited to, 1,897,023 shares of Common
      Stock of which it is the record owner, Integrated Power Systems LLC, with
      respect to all shares held thereby, including but not limited to, 1,879,023
      shares of Common Stock of which it is the record owner and Jezebel Management
      Corporation, with respect to all shares held thereby, including but not limited
      to, 1,976,633 shares of Common Stock of which it is the record owner;

     

    (vii) the
      Company and each holder (or its duly appointed representative) of the Company’s
      Series C Preferred Stock, shall have entered into a Redemption and Conversion
      Agreement in the form of Exhibit
      H
      attached
      hereto (the “Redemption
      and Conversion Agreement”)
      and
      such holders holding at least 90% of the shares of Common Stock issuable
      thereunder shall have entered into Lock-Up Agreements substantially in the
      form
      of (or less favorable to such holders) Exhibit
      G
      attached
      hereto, except that the term of the Lock-up shall commence on the date hereof
      and be until the earlier of (A) 24 months from the date of the Closing and
      (B)
      the first date by which (1) all of the Debentures have been redeemed or
      converted and all of the shares of Common Stock, if any, issued upon conversion
      of the Debentures have been sold and (2) 70% of the Warrants have been
      exercised; and

    
    

    
      
        
        

      

      
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    (viii) the
      Registration Rights Agreement duly executed by the Company.

     

    (b) On
      the
      Closing Date, each Purchaser shall deliver or cause to be delivered to the
      Company the following:

     

    
      
        (i) 
          this
          Agreement duly executed by such Purchaser;

      

    

     

    (ii) such
      Purchaser’s Subscription Amount by wire transfer to the account as specified in
      writing by the Company;

     

    (iii) the
      Security Agreement duly executed by such Purchaser; and

     

    (iv) the
      Registration Rights Agreement duly executed by such Purchaser.

     

    2.3 Closing
      Conditions. 

     

    (a) The
      obligations of the Company hereunder in connection with the Closing are subject
      to the following conditions being met:

     

    (i) the
      accuracy in all material respects when made and on the Closing Date of the
      representations and warranties of the Purchasers contained herein;

     

    (ii) all
      obligations, covenants and agreements of the Purchasers required to be performed
      at or prior to the Closing Date shall have been performed; and

     

    (iii) the
      delivery by the Purchasers of the items set forth in Section 2.2(b) of this
      Agreement,
      including an aggregate of at least $4,800,000 in Subscription
      Amounts.

     

    (b) The
      respective obligations of the Purchasers hereunder in connection with the
      Closing are subject to the following conditions being met:

     

    (i) the
      accuracy in all material respects when made and on the Closing Date of the
      representations and warranties of the Company contained herein;

     

    
      
        
        

      

      
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    (ii) all
      obligations, covenants and agreements of the Company required to be performed
      at
      or prior to the Closing Date shall have been performed; 

     

    (iii) the
      delivery by the Company of the items set forth in Section 2.2(a) of this
      Agreement,

     

    (iv) there
      shall have been no Material Adverse Effect with respect to the Company since
      the
      date hereof;

     

    (v) the
      Company shall have received aggregate Subscription Amounts of at least
      $4,800,000; and

     

    (vi) from
      the
      date hereof to the Closing Date, trading in the Common Stock shall not have
      been
      suspended by the Commission or the Company’s principal Trading Market (except
      for any suspension of trading of limited duration agreed to by the Company,
      which suspension shall be terminated prior to the Closing), and, at any time
      prior to the Closing Date, trading in securities generally as reported by
      Bloomberg L.P. shall not have been suspended or limited, or minimum prices
      shall
      not have been established on securities whose trades are reported by such
      service, or on any Trading Market, nor shall a banking moratorium have been
      declared either by the United States or New York State authorities nor shall
      there have occurred any material outbreak or escalation of hostilities or other
      national or international calamity of such magnitude in its effect on, or any
      material adverse change in, any financial market which, in each case, in the
      reasonable judgment of each Purchaser, makes it impracticable or inadvisable
      to
      purchase the Debentures at the Closing.

     

    2.4 Escrow.
      As set
      forth in Section 2.3 above, the Closing is conditioned upon, among other things,
      the receipt by the Company of a minimum of $4,800,000 of Subscription Amounts
      and the redemption and conversion of all of the Company’s Series C Preferred
      Stock as set forth in the Redemption and Conversion Agreement. To facilitate
      the
      foregoing, the Company has established an escrow account (the “Escrow
      Account”)
      with
      Company Counsel, into which each Purchaser participating in the Closing shall
      deposit its Subscription Amount, by way of check or wire transfer of immediately
      available funds to the following account:

    

      
        	
                ACCOUNT
                  NAME:

              	
                Davis
                  & Gilbert LLP Escrow Account

              
	 	 
	
                THE
                  BANK:

              	
                City
                  National Bank

              
	 	
                400
                  Park Avenue, 21st Floor 

              
	 	
                New
                  York, NY 10022

              
	 	 
	
                ACCOUNT
                  NUMBER:

              	
                665057925

              
	 	 
	
                ABA
                  NUMBER:

              	
                0260
                  1395 8

              

      

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      
        	
                MANDATORY
                  REFERENCE: 

              	
                20911/0007-000/Solomon/ref.
                  Norton

              

      

    

    

    Amounts
      deposited into the Escrow Account will be held and disbursed in accordance
      with
      the terms and provisions of the Escrow Agreement.

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1 Representations
      and Warranties of the Company.
      Except
      as set forth in the disclosure schedules delivered to the Purchasers
      concurrently herewith (the “Disclosure
      Schedules”),
      which
      Disclosure Schedules shall be deemed a part hereof and to qualify any
      representation or warranty otherwise made herein to the extent of such
      disclosure, the Company hereby makes the following representations and
      warranties to each Purchaser:

     

    (a) Subsidiaries.
      All of
      the direct and indirect subsidiaries of the Company are set forth on
Schedule
      3.1(a).
      The
      Company owns, directly or indirectly, all of the capital stock or other equity
      interests of each Subsidiary free and clear of any Liens, and all of the issued
      and outstanding shares of capital stock of each Subsidiary are validly issued
      and are fully paid, non-assessable and free of preemptive and similar rights
      to
      subscribe for or purchase securities. 

     

    (b) Organization
      and Qualification.
      The
      Company and each of the Subsidiaries is an entity duly incorporated or otherwise
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or organization (as applicable), with the
      requisite power and authority to own and use its properties and assets and
      to
      carry on its business as currently conducted. Neither the Company nor any
      Subsidiary is in material violation or default of any of the provisions of
      its
      respective certificate or articles of incorporation, bylaws or other
      organizational or charter documents. Each of the Company and the Subsidiaries
      is
      duly qualified to conduct business and is in good standing as a foreign
      corporation or other entity in each jurisdiction in which the nature of the
      business conducted or property owned by it makes such qualification necessary,
      except where the failure to be so qualified or in good standing, as the case
      may
      be, could not have or reasonably be expected to result in a Material Adverse
      Effect and to the Company’s knowledge no Proceeding has been instituted in any
      such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit
      or curtail such power and authority or qualification. For purposes of this
      Agreement, “Material
      Adverse Effect”
means
      (i) a material adverse effect on the legality, validity or enforceability of
      any
      Transaction Document, (ii) a material adverse effect on the results of
      operations, assets, business, prospects or condition (financial or otherwise)
      of
      the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
      effect on the Company’s ability to perform in any material respect on a timely
      basis its obligations under any Transaction Document; provided that none of
      the
      following shall be deemed, either alone or in combination, to constitute a
      Material Adverse Effect, with respect to the Company: (a) conditions generally
      affecting any of the industries or markets of the United States and that do
      not
      disproportionately impact the Company and its Subsidiaries and Affiliates,
      taken
      as a whole, when compared with other businesses operating in the same sector,
      (b) financial market fluctuations or conditions (including changes in interest
      rates of foreign currency exchange rates) and that do not disproportionately
      impact the Company and its Subsidiaries and Affiliates, taken as a whole, when
      compared with other businesses operating in the same sector, (c) any changes
      in
      tax, securities or other Applicable Laws, (d) any action, omission, change,
      effect, circumstance or condition contemplated by this Agreement or attributable
      to the execution, performance or announcement of this Agreement and the
      transactions contemplated hereby or (e) acts of terrorism, war (whether declared
      or not), hostilities, or any similar event or occurrence.

     

    
      
        
        

      

      
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    (c) Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      and otherwise to carry out its obligations hereunder and thereunder. The
      execution and delivery of each of the Transaction Documents by the Company
      and
      the consummation by it of the transactions contemplated hereby and thereby
      have
      been duly authorized by all necessary corporate action on the part of the
      Company and no further action is required by the Company, its board of directors
      or its stockholders in connection therewith other than in connection with the
      Required Approvals. Each Transaction Document has been (or upon delivery will
      have been) duly executed by the Company and, when delivered in accordance with
      the terms hereof and thereof, will constitute the valid and legally binding
      obligation of the Company enforceable against the Company in accordance with
      its
      terms except (i) as limited by general equitable principles and applicable
      bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
      other laws of general application affecting enforcement of creditors’ rights
      generally, (ii) as limited by laws relating to the availability of specific
      performance, injunctive relief or other equitable remedies and (iii) insofar
      as
      indemnification and contribution provisions may be limited by applicable
      law.

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the other transactions contemplated
      hereby and thereby do not and will not: (i) conflict with or violate any
      provision of the Company’s or any Subsidiary’s certificate or articles of
      incorporation, bylaws or other organizational or charter documents, or (ii)
      conflict with, or constitute a default (or an event that with notice or lapse
      of
      time or both would become a default) under, result in the creation of any Lien
      upon any of the properties or assets of the Company or any Subsidiary, or give
      to others any rights of termination, amendment, acceleration or cancellation
      (with or without notice, lapse of time or both) of, any agreement, credit
      facility, debt or other instrument (evidencing a Company or Subsidiary debt
      or
      otherwise) or other understanding to which the Company or any Subsidiary is
      a
      party or by which any property or asset of the Company or any Subsidiary is
      bound or affected, or (iii) assuming the Required Approvals are obtained,
      conflict with or result in a violation of any law, rule, regulation, order,
      judgment, injunction, decree or other restriction of any court or governmental
      authority to which the Company or a Subsidiary is subject (including federal
      and
      state securities laws and regulations), or by which any property or asset of
      the
      Company or a Subsidiary is bound or affected, except in the case of each of
      clauses (ii) and (iii), such as could not have or reasonably be expected to
      result in a Material Adverse Effect.

     

    
      
        
        

      

      
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    (e) Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (i) filings required pursuant to Section
      4.6,
      (ii) the filing with the Commission of the Registration Statement, (iii) the
      notice and/or application(s) to each applicable Trading Market for the issuance
      and sale of the Securities and the listing of the Underlying Shares for trading
      thereon in the time and manner required thereby and (iv) the filing of Form
      D
      with the Commission and such filings as are required to be made under applicable
      state securities laws (collectively, the “Required
      Approvals”).

     

    (f) Issuance
      of the Securities.
      The
      Securities are duly authorized and, when issued and paid for in accordance
      with
      the applicable Transaction Documents, will be duly and validly issued, fully
      paid and nonassessable, free and clear of all Liens imposed by the Company
      other
      than restrictions on transfer provided for in the Transaction Documents. The
      Underlying Shares, when issued in accordance with the terms of the Transaction
      Documents, will be validly issued, fully paid and nonassessable, free and clear
      of all Liens imposed by the Company. The Company has reserved from its duly
      authorized capital stock a number of shares of Common Stock for issuance of
      the
      Underlying Shares at least equal to the Required Minimum on the date hereof.
      

     

    (g) Capitalization.
      The
      capitalization of the Company is as set forth on Schedule
      3.1(g).
      The
      Company has not issued any capital stock since its most
      recently filed periodic report under the Exchange Act,
      other
      than pursuant to the exercise of employee stock options under the Company’s
      stock option plans, the issuance of shares of Common Stock to employees pursuant
      to the Company’s employee stock purchase plan and pursuant to the conversion or
      exercise of Common Stock Equivalents outstanding as of the date of the most
      recently filed periodic report under the Exchange Act. No Person has any right
      of first refusal, preemptive right, right of participation, or any similar
      right
      to participate in the transactions contemplated by the Transaction Documents.
      Except as a result of the purchase and sale of the Securities, and as set forth
      on Schedule
      3.1(g)
      and
      pursuant to the Redemption and Conversion Agreement, which shares are disclosed
      and set forth on the Disclosure Schedules, there are no outstanding options,
      warrants, scrip rights to subscribe to, calls or commitments of any character
      whatsoever relating to, or securities, rights or obligations convertible into
      or
      exercisable or exchangeable for, or giving any Person any right to subscribe
      for
      or acquire, any shares of Common Stock, or contracts, commitments,
      understandings or arrangements by which the Company or any Subsidiary is or
      may
      become bound to issue additional shares of Common Stock or Common Stock
      Equivalents. Except as set forth on Schedule 3.1(g), the issuance and sale
      of
      the Securities will not obligate the Company to issue shares of Common Stock
      or
      other securities to any Person (other than the Purchasers) and will not result
      in a right of any holder of Company securities to adjust the exercise,
      conversion, exchange or reset price under any of such securities. To the
      Company’s knowledge, all of the outstanding shares of capital stock of the
      Company are validly issued, fully paid and nonassessable, have been issued
      in
      compliance with all federal and state securities laws. Except as set forth
      on
Schedule
      3.1(g),
      none of
      such outstanding shares was issued in violation of any preemptive rights or
      similar rights to subscribe for or purchase securities. No further approval
      or
      authorization of any stockholder, the Board of Directors of the Company or
      others is required for the issuance and sale of the Securities. There are no
      stockholders agreements, voting agreements or other similar agreements with
      respect to the Company’s capital stock to which the Company is a party or, to
      the knowledge of the Company, between or among any of the Company’s
      stockholders.

     

    
      
        
        

      

      
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    (h) SEC
      Reports; Financial Statements.
      Except
      as set forth on Schedule 3.1(h), the Company has filed all reports, schedules,
      forms, statements and other documents required to be filed by the Company under
      the Securities Act and the Exchange Act, including pursuant to Section 13(a)
      or
      15(d) thereof, for the two years preceding the date hereof (the foregoing
      materials, being collectively referred to herein as the “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, the SEC Reports complied in all material respects with
      the requirements of the Securities Act and the Exchange Act, as applicable,
      and
      none of the SEC Reports, when filed, contained 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 the light of the
      circumstances under which they were made, not misleading. Except as set forth
      on
      Schedule 3.1(h), the financial statements of the Company included in the SEC
      Reports (i) comply in all material respects with applicable accounting
      requirements and the rules and regulations of the Commission with respect
      thereto as in effect at the time of filing and (ii) have been prepared in
      accordance with United States generally accepted accounting principles applied
      on a consistent basis during the periods involved (“GAAP”),
      except as may be otherwise specified in such financial statements or the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP, and fairly present in all material respects the
      financial position of the Company and its consolidated Subsidiaries as of and
      for the dates thereof and the results of operations and cash flows for the
      periods then ended, subject, in the case of unaudited statements, to normal,
      immaterial, year-end audit adjustments.

     

    (i) Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in a subsequent SEC Report filed
      prior
      to the date hereof, (i) there has been no event, occurrence or development
      that
      has had or that could reasonably be expected to result in a Material Adverse
      Effect, (ii) the Company has not incurred any liabilities (contingent or
      otherwise) other than (A) trade payables and accrued expenses incurred in the
      ordinary course of business consistent with past practice and (B) liabilities
      not required to be reflected in the Company’s financial statements pursuant to
      GAAP or disclosed in filings made with the Commission, (iii) the Company has
      not
      altered its method of accounting, (iv) the Company has not declared or made
      any
      dividend or distribution of cash or other property to its stockholders or
      purchased, redeemed or made any agreements to purchase or redeem any shares
      of
      its capital stock and (v) the Company has not issued any equity securities
      to
      any officer, director or Affiliate, except pursuant to existing Company stock
      option plans. The Company does not have pending before the Commission any
      request for confidential treatment of information. Except for the issuance
      of
      the Securities contemplated by this Agreement or as set forth on Schedule
      3.1(i),
      no
      event, liability or development has occurred or exists with respect to the
      Company or its Subsidiaries or their respective business, properties, operations
      or financial condition, that would be required to be disclosed by the Company
      on
      Form 8-K at the time this representation is made that has not been publicly
      disclosed at least one Trading Day prior to the date that this representation
      is
      made.

     

    
      
        
        

      

      
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    (j) Litigation.
      There
      is no action, suit, inquiry, notice of violation, proceeding or investigation
      pending or, to the knowledge of the Company, threatened against or affecting
      the
      Company, any Subsidiary or any of their respective properties before or by
      any
      court, arbitrator, governmental or administrative agency or regulatory authority
      (federal, state, county, local or foreign) (collectively, an “Action”)
      which
      (i) adversely affects or challenges the legality, validity or enforceability
      of
      any of the Transaction Documents or the Securities or (ii) could, if there
      were
      an unfavorable decision, have or reasonably be expected to result in a Material
      Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
      officer thereof, is or has been the subject of any Action involving a claim
      of
      violation of or liability under federal or state securities laws or a claim
      of
      breach of fiduciary duty. There has not been, and to the knowledge of the
      Company, there is not pending or contemplated, any investigation by the
      Commission involving the Company or any current or former director or officer
      of
      the Company. The Commission has not issued any stop order or other order
      suspending the effectiveness of any registration statement filed by the Company
      or any Subsidiary under the Exchange Act or the Securities Act. 

     

    (k) Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a Material Adverse Effect. None of the Company’s or its
      Subsidiaries’ employees is a member of a union that relates to such employee’s
      relationship with the Company, and neither the Company or any of its
      Subsidiaries is a party to a collective bargaining agreement, and the Company
      and its Subsidiaries believe that their relationships with their employees
      are
      good. No executive officer, to the knowledge of the Company, is, or is now
      expected by the Company to be, in violation of any material term of any
      employment contract, confidentiality, disclosure or proprietary information
      agreement or non-competition agreement, or any other contract or agreement
      or
      any restrictive covenant, and the continued employment of each such executive
      officer does not subject the Company or any of its Subsidiaries to any liability
      with respect to any of the foregoing matters. The Company and its Subsidiaries
      are in compliance with all U.S. federal, state, local and foreign laws and
      regulations relating to employment and employment practices, terms and
      conditions of employment and wages and hours, except where the failure to be
      in
      compliance could not, individually or in the aggregate, reasonably be expected
      to have a Material Adverse Effect.

     

    
      
        
        

      

      
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    (l) Compliance.
      Except
      as set forth on Schedule 3.1(l), neither the Company nor any Subsidiary (i)
      is,
      to the Company’s knowledge, in default under or in violation of (and no event
      has occurred that has not been waived that, with notice or lapse of time or
      both, would result in a default by the Company or any Subsidiary under), nor
      has
      the Company or any Subsidiary received notice of a claim that it is in default
      under or that it is in violation of, any indenture, loan or credit agreement
      or
      any other agreement or instrument to which it is a party or by which it or
      any
      of its properties is bound (whether or not such default or violation has been
      waived), (ii) is in violation of any order of any court, arbitrator or
      governmental body, or (iii) is or has been, to the Company’s knowledge, in
      violation of any statute, rule or regulation of any governmental authority,
      including without limitation all foreign, federal, state and local laws
      applicable to its business and all such laws that affect the environment, except
      in each case as could not have or reasonably be expected to result in a Material
      Adverse Effect.

     

    (m) Regulatory
      Permits.
      The
      Company and the Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses as described in
      the
      SEC Reports, except where the failure to possess such permits could not have
      or
      reasonably be expected to result in a Material Adverse Effect (“Material
      Permits”),
      and
      neither the Company nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any Material Permit.

     

    (n) Title
      to Assets.
      Neither
      the Company nor any of the Subsidiaries own any real property. The Company
      and
      the Subsidiaries have good and marketable title in all personal property owned
      by them that is material to the business of the Company and the Subsidiaries,
      in
      each case free and clear of all Liens, except for Liens as do not materially
      affect the value of such property and do not materially interfere with the
      use
      made and proposed to be made of such property by the Company and the
      Subsidiaries and Liens for the payment of federal, state or other taxes, the
      payment of which is neither delinquent nor subject to penalties. Any real
      property and facilities held under lease by the Company and the Subsidiaries
      are
      held by them under valid, subsisting and enforceable leases with which the
      Company and the Subsidiaries are in compliance, except where the failure to
      be
      in compliance would not, individually or in the aggregate, reasonably be
      expected to result in a Material Adverse Effect.

     

    (o) Patents
      and Trademarks.
      The
      Company and the Subsidiaries have, or have rights to use, all patents, patent
      applications, trademarks, trademark applications, service marks, trade names,
      trade secrets, inventions, copyrights, licenses and other intellectual property
      rights and similar rights necessary or material for use in connection with
      their
      respective businesses as described in the SEC Reports and which the failure
      to
      so have could have a Material Adverse Effect (collectively, the “Intellectual
      Property Rights”).
      Neither the Company nor any Subsidiary has received a written notice that the
      Intellectual Property Rights used by the Company or any Subsidiary violates
      or
      infringes upon the rights of any Person. To the knowledge of the Company, except
      as set forth in Schedule 3.1(o), all such Intellectual Property Rights are
      enforceable and there is no existing infringement by another Person of any
      of
      the Intellectual Property Rights. The Company and its Subsidiaries have taken
      reasonable security measures to protect the secrecy, confidentiality and value
      of all of their intellectual properties, except where failure to do so could
      not, individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect.

     

    
      
        
        

      

      
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    (p) Insurance.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged, except that neither the Company nor the Subsidiaries have directors
      and
      officers insurance coverage. Neither the Company nor any Subsidiary has any
      reason to believe that it will not be able to renew its existing insurance
      coverage as and when such coverage expires or to obtain similar coverage from
      similar insurers as may be necessary to continue its business without a
      significant increase in cost.

     

    (q) Transactions
      with Affiliates and Employees.
      Except
      as set forth in the SEC Reports, none of the officers or directors of the
      Company and, to the knowledge of the Company, none of the employees of the
      Company is presently a party to any transaction with the Company or any
      Subsidiary (other than for services as employees, officers and directors),
      including any contract, agreement or other arrangement providing for the
      furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any officer,
      director or such employee or, to the knowledge of the Company, any entity in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner, in each case in excess of $60,000
      other than (i) for payment of salary or consulting fees for services rendered,
      (ii) reimbursement for expenses incurred on behalf of the Company and (iii)
      for
      other employee benefits, including stock option agreements under any stock
      option plan of the Company.

     

    (r) Sarbanes-Oxley;
      Internal Accounting Controls.
      The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the Closing Date. 

     

    (s) Certain
      Fees.
      Except
      as set forth on Schedule 3.1(s), no brokerage or finder’s fees or commissions
      are or will be payable by the Company to any broker, financial advisor or
      consultant, finder, placement agent, investment banker, bank or other Person
      with respect to the transactions contemplated by this Agreement. The Purchasers
      shall have no obligation with respect to any fees or with respect to any claims
      made by or on behalf of other Persons for fees of a type contemplated in this
      Section that may be due in connection with the transactions contemplated by
      the
      Transaction Documents. 

     

    (t) Private
      Placement.
      Assuming the accuracy of the Purchasers’ representations and warranties set
      forth in Section 3.2, no registration under the Securities Act is required
      for
      the offer and sale of the Securities by the Company to the Purchasers as
      contemplated hereby. The issuance and sale of the Securities hereunder does
      not
      contravene the rules and regulations of the Trading Market.

     

    
      
        
        

      

      
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    (u) Investment
      Company.
      The
      Company is not, and is not an Affiliate of, and immediately after receipt of
      payment for the Securities, will not be or be an Affiliate of, an “investment
      company” within the meaning of the Investment Company Act of 1940, as amended.
      The Company shall conduct its business in a manner so that it will not become
      subject to the Investment Company Act of 1940, as amended.

     

    (v) Registration
      Rights.
      Except
      as set forth on Schedule 3.1(v), and other than each of the Purchasers, no
      Person has any right to cause the Company to effect the registration under
      the
      Securities Act of any securities of the Company.

     

    (w) Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
      Act, and the Company has taken no action designed to, or which to its knowledge
      is likely to have the effect of, terminating the registration of the Common
      Stock under the Exchange Act nor has the Company received any notification
      that
      the Commission is contemplating terminating such registration. The Common Stock
      is listed on the OTC Bulletin Board and the Company has not, in the 12 months
      preceding the date hereof, received notice from the OTC Bulletin Board to the
      effect that the Company is not in compliance with the listing or maintenance
      requirements of such Trading Market. The Company is, and has no reason to
      believe that it will not in the foreseeable future continue to be, in compliance
      with all such listing and maintenance requirements.

     

    (x) Application
      of Takeover Protections.
      The
      Company and its board of directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under the Company’s certificate of
      incorporation (or similar charter documents) that is or could become applicable
      to the Purchasers as a result of the Purchasers and the Company fulfilling
      their
      obligations or exercising their rights under the Transaction Documents,
      including without limitation as a result of the Company’s issuance of the
      Securities and the Purchasers’ ownership of the Securities.

     

    (y) Disclosure.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company confirms that neither
      it
      nor any other Person acting on its behalf has provided any of the Purchasers
      or
      their agents or counsel with any information that it believes constitutes or
      might constitute material, nonpublic information. The Company understands and
      confirms that the Purchasers will rely on the foregoing representation in
      effecting transactions in securities of the Company. All disclosure furnished
      by
      or on behalf of the Company to the Purchasers regarding the Company, its
      business and the transactions contemplated hereby, including the Disclosure
      Schedules to this Agreement, is true and correct and does not contain any untrue
      statement of a material fact. The Company acknowledges and agrees that no
      Purchaser makes or has made any representations or warranties with respect
      to
      the transactions contemplated hereby other than those specifically set forth
      in
      Section 3.2 hereof.

     

    
      
        
        

      

      
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    (z) No
      Integrated Offering.
      Assuming
      the accuracy of the Purchasers’ representations and warranties set forth in
      Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
      acting on its or their behalf has, directly or indirectly, made any offers
      or
      sales of any security or solicited any offers to buy any security, under
      circumstances that would cause this offering of the Securities to be integrated
      with prior offerings by the Company for purposes of the Securities
      Act.

     

    (aa) Solvency.
      Based
      on the financial condition of the Company as of the Closing Date after giving
      effect to the receipt by the Company of the proceeds from the sale of the
      Securities hereunder, (i) the fair saleable value of the Company’s assets
      exceeds the amount that will be required to be paid on or in respect of the
      Company’s existing debts and other liabilities (including known contingent
      liabilities) as they mature; (ii) the Company’s assets do not constitute
      unreasonably small capital to carry on its business as now conducted and as
      proposed to be conducted including its capital needs taking into account the
      particular capital requirements of the business conducted by the Company, and
      projected capital requirements and capital availability thereof; and (iii)
      the
      current cash flow of the Company, together with the proceeds the Company would
      receive, were it to liquidate all of its assets, after taking into account
      all
      anticipated uses of the cash, would be sufficient to pay all amounts on or
      in
      respect of its liabilities when such amounts are required to be paid. The
      Company has no knowledge of any facts or circumstances which lead it to believe
      that it will file for reorganization or liquidation under the bankruptcy or
      reorganization laws of any jurisdiction within one year from the Closing Date.
      Schedule
      3.1(aa)
      sets
      forth as of the dates thereof all outstanding secured and unsecured Indebtedness
      of the Company or any Subsidiary, or for which the Company or any Subsidiary
      has
      commitments. For the purposes of this Agreement, “Indebtedness”
means
      (a) any liabilities for borrowed money or amounts owed in excess of $50,000
      (other than trade accounts payable incurred in the ordinary course of business),
      (b) all guaranties, endorsements and other contingent obligations in respect
      of
      Indebtedness of others, whether or not the same are or should be reflected
      in
      the Company’s balance sheet (or the notes thereto), except guaranties by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of
      any lease payments
      in excess of $50,000 due under leases required to be capitalized in accordance
      with GAAP. Except
      as
      set forth on Schedule 3.1(aa), neither the Company nor any Subsidiary is in
      default with respect to any Indebtedness.

     

    (bb) Tax
      Status.
       
      Except
      for matters that would not, individually or in the aggregate, have or reasonably
      be expected to result in a Material Adverse Effect, the Company and each
      Subsidiary has filed all necessary federal, state and foreign income and
      franchise tax returns and has paid or accrued all taxes shown as due thereon
      (
      except to the extent that the Company has set aside on its books provisions
      reasonably adequate for the payment of all unpaid and unreported taxes), and
      the
      Company has no knowledge of a tax deficiency which has been asserted or
      threatened against the Company or any Subsidiary.

     

    
      
        
        

      

      
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    (cc) No
      General Solicitation.
      Neither
      the Company nor any person acting on behalf of the Company has offered or sold
      any of the Securities by any form of general solicitation or general
      advertising. The Company has offered the Securities for sale only to the
      Purchasers and certain other “accredited investors” within the meaning of Rule
      501 under the Securities Act.

     

    (dd) Foreign
      Corrupt Practices.
      Neither
      the Company, nor to the knowledge of the Company, any agent or other person
      acting on behalf of the Company, has violated in any material respect any
      provision of the Foreign Corrupt Practices Act of 1977, as amended.

     

    (ee) Accountants.
      The
      name of the Company’s accounting firm is set forth on Schedule
      3.1(ee)
      of the
      Disclosure Schedule. To the knowledge and belief of the Company, (i) such
      accounting firm is a registered public accounting firm as required by the
      Exchange Act and (ii) there is no reason to expect that such accounting firm
      will refuse to express its opinion with respect to the financial statements
      to
      be included in the Company’s Annual Report on Form 10-KSB for the year ending
      December 31, 2006.

     

    (ff) Seniority.
      Except
      as set forth on Schedule
      3.1(ff),
      as of
      the Closing Date, no Indebtedness or other claim against the Company is senior
      to the Debentures in right of payment, whether with respect to interest or
      upon
      liquidation or dissolution, or otherwise, other than indebtedness secured by
      purchase money security interests (which is senior only as to underlying assets
      covered thereby) and capital lease obligations (which is senior only as to
      the
      property covered thereby).

     

    (gg) No
      Disagreements with Accountants and Lawyers.
      Except
      as set forth on Schedule
      3.1(gg),
      there
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company and the Company is current with
      respect to any fees owed to its accountants and lawyers.

     

    (hh) Acknowledgment
      Regarding Purchasers’ Purchase of Securities.
      The
      Company acknowledges and agrees that each of the Purchasers is acting solely
      in
      the capacity of an arm’s length purchaser with respect to the Transaction
      Documents and the transactions contemplated thereby. The Company further
      acknowledges that no Purchaser is acting as a financial advisor or fiduciary
      of
      the Company (or in any similar capacity) with respect to the Transaction
      Documents and the transactions contemplated thereby and any advice given by
      any
      Purchaser or any of their respective representatives or agents in connection
      with the Transaction Documents and the transactions contemplated thereby is
      merely incidental to the Purchasers’ purchase of the Securities. The Company
      further represents to each Purchaser that the Company’s decision to enter into
      this Agreement and the other Transaction Documents has been based solely on
      the
      independent evaluation of the transactions contemplated hereby by the Company
      and its representatives.

     

    
      
        
        

      

      
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    (ii) Acknowledgment
      Regarding Purchasers’ Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding
      (except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged
      by the Company (i) that none of the Purchasers have been asked to agree, nor
      has
      any Purchaser agreed, to desist from purchasing or selling, long and/or short,
      securities of the Company, or “derivative” securities based on securities issued
      by the Company or to hold the Securities for any specified term; (ii) that
      past
      or future open market or other transactions by any Purchaser, including Short
      Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
      placement transactions, may negatively impact the market price of the Company’s
      publicly-traded securities; (iii) that any Purchaser, and counter-parties in
      “derivative” transactions to which any such Purchaser is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock; and (iv)
      that each Purchaser shall not be deemed to have any affiliation with or control
      over any arm’s length counter-party in any “derivative” transaction.
The
      Company further understands and acknowledges that (a) one or more Purchasers
      may
      engage in hedging activities at various times during the period that the
      Securities are outstanding, including, without limitation, during the periods
      that the value of the Underlying Shares deliverable with respect to Securities
      are being determined and (b) such hedging activities (if any) could reduce
      the
      value of the existing stockholders' equity interests in the Company at and
      after
      the time that the hedging activities are being conducted.  The Company
      acknowledges that such aforementioned hedging activities do not constitute
      a
      breach of any of the Transaction Documents.

     

    (jj) Regulation
      M Compliance. 
      The Company has not, and to its knowledge no one acting on its behalf has,
      (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or paid any compensation for soliciting purchases of, any of the
      securities of the Company or (iii) paid or agreed to pay to any Person any
      compensation for soliciting another to purchase any other securities of the
      Company, other than, in the case of clauses (ii) and (iii), compensation paid
      to
      the Company’s placement agent in connection with the placement of the
      Securities.

     

    3.2 Representations
      and Warranties of the Purchasers.
      Each
      Purchaser hereby, for itself and for no other Purchaser, represents and warrants
      as of the date hereof and as of the Closing Date to the Company as
      follows:

     

    (a) Organization;
      Authority.
      Such
      Purchaser is an entity duly incorporated or otherwise organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation or organization with the requisite, corporate or partnership
      power
      and authority to enter into and to consummate the transactions contemplated
      by
      the Transaction Documents and otherwise to carry out its obligations hereunder
      and thereunder. The execution and delivery of each of the Transaction Documents
      by such Purchaser and the consummation by it of the transactions contemplated
      hereby and thereby have been duly authorized by all necessary corporate or
      similar action on the part of such Purchaser its board of directors or its
      stockholders in connection therewith. Each Transaction Document to which it
      is a
      party has been duly executed by such Purchaser, and when delivered by such
      Purchaser in accordance with the terms hereof, and thereof, will constitute
      the
      valid and legally binding obligation of such Purchaser, enforceable against
      it
      in accordance with its terms, except (i) as limited by general equitable
      principles and applicable bankruptcy, insolvency, reorganization, moratorium
      and
      other laws of general application affecting enforcement of creditors’ rights
      generally, (ii) as limited by laws relating to the availability of specific
      performance, injunctive relief or other equitable remedies and (iii) insofar
      as
      indemnification and contribution provisions may be limited by applicable
      law.

     

    
      
        
        

      

      
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    (b) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the
      Purchaser and the consummation by the Purchaser of the other transactions
      contemplated hereby and thereby do not and will not: (i) conflict with or
      violate any provision of the Purchaser’s certificate or articles of
      incorporation, bylaws or other organizational or charter documents, or (ii)
      subject to the Required Approvals, conflict with or result in a violation of
      any
      law, rule, regulation, order, judgment, injunction, decree or other restriction
      of any court or governmental authority to which the Purchaser is subject
      (including federal and state securities laws and regulations.

     

    (c) Own
      Account.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities as principal for its own account and not
      with a view to or for distributing or reselling such Securities or any part
      thereof in violation of the Securities Act or any applicable state securities
      law, has no present intention of distributing any of such Securities in
      violation of the Securities Act or any applicable state securities law and
      has
      no direct or indirect arrangement or understandings with any other persons
      to
      distribute or regarding the distribution of such Securities (this representation
      and warranty not limiting such Purchaser’s right to sell the Securities pursuant
      to the Registration Statement or otherwise in compliance with applicable federal
      and state securities laws) in violation of the Securities Act or any applicable
      state securities law. Such Purchaser is acquiring the Securities hereunder
      in
      the ordinary course of its business.

     

    (d) Purchaser
      Status.
      At the
      time such Purchaser was offered the Securities, it was, and at the date hereof
      it is, and on each date on which it exercises any Warrants or converts any
      Debentures it will be, either: (i) an “accredited investor” as defined in Rule
      501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii)
      a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
      Act. Such Purchaser is not registered or required to be registered as a
      broker-dealer under Section 15 of the Exchange Act.

     

    
      
        
        

      

      
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    (e) Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its purchaser representatives (as
      such
      term is defined in Rule 501(h) of Regulation D under the Securities Act), has
      such knowledge, sophistication and experience in business and financial matters
      so as to be capable of evaluating the merits and risks of the prospective
      investment in the Securities, and has so evaluated the merits and risks of
      such
      investment. Such Purchaser is able to bear the economic risk of an investment
      in
      the Securities and, at the present time, is able to afford a complete loss
      of
      such investment.

     

    (f) General
      Solicitation.
      Such
      Purchaser is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar or any other general solicitation or general
      advertisement.

     

    (g) Residence.
      If such
      Purchaser is an individual, then such Purchaser resides in the state or province
      identified in the address of such Purchaser set forth on the signature page
      hereto; if such Purchaser is a partnership, corporation, limited liability
      company or other entity, then the office or offices of such Purchaser in which
      its investment decision was made is located at the address or addresses of
      such
      Purchaser set forth on the signature page hereto.

     

    (h)  Rule
      144.
      Subject
      to Section 4.1(a), such Purchaser acknowledges and agrees that the Securities
      are “restricted securities” as defined in Rule 144 promulgated under the
      Securities Act as in effect from time to time and must be held indefinitely
      unless they are subsequently registered under the Securities Act or an exemption
      from such registration is available. Such Purchaser has been advised or is
      aware
      of the provisions of Rule 144, which permits limited resale of shares purchased
      in a private placement subject to the satisfaction of certain conditions,
      including, among other things: the availability of certain current public
      information about the Company, the resale occurring following the required
      holding period under Rule 144 and the number of shares being sold during any
      three-month period not exceeding specified limitations.

     

    (i) Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other
      than the transaction contemplated hereunder, such Purchaser has not directly
      or
      indirectly, nor has any Person acting on behalf of or pursuant to any
      understanding with such Purchaser, executed any transaction, including Short
      Sales, in the securities of the Company during the period commencing
      from
      the time
      that such Purchaser first received a term sheet (written or oral) from the
      Company or any other Person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (“Discussion
      Time”).
      Notwithstanding
      the foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of such
      Purchaser's assets and the portfolio managers have no direct knowledge of the
      investment decisions made by the portfolio managers managing other portions
      of
      such Purchaser's assets, the representation set forth above shall only apply
      with respect to the portion of assets managed by the portfolio manager that
      made
      the investment decision to purchase the Securities covered by this Agreement.
      Other than to other Persons party to this Agreement, such Purchaser has
      maintained the confidentiality of all disclosures made to it in connection
      with
      this transaction (including the existence and terms of this
      transaction).

     

    
      
        
        

      

      
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    ARTICLE
      IV.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1 Transfer
      Restrictions.

     

    (a) The
      Securities may only be transferred or otherwise disposed of in compliance with
      state and federal securities laws. In connection with any transfer or other
      disposition of Securities other than pursuant to an effective registration
      statement or Rule 144, to the Company or to an Affiliate of a Purchaser or
      in
      connection with a pledge as contemplated in Section 4.1(b), the Company may
      require the transferor thereof to provide to the Company an opinion of counsel
      selected by the transferor and reasonably acceptable to the Company, the form
      and substance of which opinion shall be reasonably satisfactory to the Company,
      to the effect that such transfer does not require registration of such
      transferred Securities under the Securities Act. As a condition of transfer,
      any
      such transferee shall agree in writing to be bound by the terms of this
      Agreement and shall have the rights of a Purchaser under this Agreement and
      the
      Registration Rights Agreement.

     

    (b) The
      Purchasers agree to the imprinting, so long as is required by this Section
      4.1,
      of a legend on any of the Securities in substantially the following
      form:

     

    [NEITHER]
      THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
      [CONVERTIBLE]] HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
      COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
      EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
      ACT”) AND ARE “RESTRICTED SECURITIES” AS THAT TERM IS DEFINED IN RULE 144 UNDER
      THE ACT. THE SECURITIES MAY NOT BE OFFERED OR FOR SALE, SOLD OR OTHERWISE
      TRANSFERED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
      SECURITIES ACT OR PURSUANT TO AN EXEMPTION FROM, OR UNDER THE ACT, THE
      AVAILABILITY OF WHICH IS ESTABLISHED TO THE SATISFACTION OF THE
      COMPANY.

     

    The
      Company acknowledges and agrees that a Purchaser may from time to time pledge
      pursuant to a bona fide margin agreement with a registered broker-dealer or
      grant a security interest in some or all of the Securities to a financial
      institution that is an “accredited investor” as defined in Rule 501(a) under the
      Securities Act and who agrees to be bound by the provisions of this Agreement
      and the Registration Rights Agreement and, if required under the terms of such
      arrangement, such Purchaser may transfer pledged or secured Securities to the
      pledgees or secured parties. Such a pledge or transfer would not be subject
      to
      approval of the Company and no legal opinion of legal counsel of the pledgee,
      secured party or pledgor shall be required in connection therewith. Further,
      no
      notice shall be required of such pledge. At the appropriate Purchaser’s expense,
      the Company will execute and deliver such reasonable documentation as a pledgee
      or secured party of Securities may reasonably request in connection with a
      pledge or transfer of the Securities, including, if the Securities are subject
      to registration pursuant to the Registration Rights Agreement, the preparation
      and filing of any required prospectus supplement under Rule 424(b)(3) under
      the
      Securities Act or other applicable provision of the Securities Act to
      appropriately amend the list of Selling Stockholders thereunder.

     

    
      
        
        

      

      
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    (c) Certificates
      evidencing the Underlying Shares shall not contain any legend (including the
      legend set forth in Section 4.1(b) hereof): (i) while a registration statement
      (including the Registration Statement) covering the resale of such security
      is
      effective under the Securities Act, or (ii) following any sale of such
      Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares
      are
      eligible for sale under Rule 144(k). The Company shall cause its counsel to
      issue a legal opinion to the Transfer Agent promptly after the Effective Date
      if
      required by the Transfer Agent to effect the removal of the legend hereunder.
      If
      all or any portion of a Debenture or Warrant is converted or exercised (as
      applicable) at a time when there is an effective registration statement to
      cover
      the resale of the Underlying Shares, or if such Underlying Shares may be sold
      under Rule 144(k) then such Underlying Shares shall be issued free of all
      legends. The Company agrees that following the Effective Date or at such time
      as
      such legend is no longer required under this Section 4.1(c), it will, no later
      than three Trading Days following the delivery by a Purchaser to the Company
      or
      the Transfer Agent of a certificate representing Underlying Shares, as
      applicable, issued with a restrictive legend (such third Trading Day, the
“Legend
      Removal Date”),
      deliver or cause to be delivered to such Purchaser a certificate representing
      such shares that is free from all restrictive and other legends. The Company
      may
      not make any notation on its records or give instructions to the Transfer Agent
      that enlarge the restrictions on transfer set forth in this Section. If
      requested by a Purchaser, Certificates for Underlying Shares subject to legend
      removal hereunder shall be transmitted by the Transfer Agent to such Purchaser
      by crediting the account of the Purchaser’s prime broker with the Depository
      Trust Company System.

    

    (d) In
      addition to such Purchaser’s other available remedies, the Company shall pay to
      a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
      each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on
      the
      date such Securities are submitted to the Transfer Agent) delivered for removal
      of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
      (increasing to $20 per Trading Day 5 Trading Days after such damages have begun
      to accrue) for each Trading Day after the 2nd
      Trading
      Day immediately following the Legend Removal Date until such certificate is
      delivered without a legend. Nothing herein shall limit such Purchaser’s right to
      pursue actual damages for the Company’s failure to deliver certificates
      representing any Securities as required by the Transaction Documents, and such
      Purchaser shall have the right to pursue all remedies available to it at law
      or
      in equity including, without limitation, a decree of specific performance and/or
      injunctive relief.

     

    
      
        
        

      

      
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    (e) Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Securities
      as
      set forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser will sell any Securities pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein.

     

    4.2 Acknowledgment
      of Dilution.
      The
      Company acknowledges that the issuance of the Securities may result in dilution
      of the outstanding shares of Common Stock, which dilution may be substantial
      under certain market conditions. The Company further acknowledges that its
      obligations under the Transaction Documents, including without limitation its
      obligation to issue the Underlying Shares pursuant to the Transaction Documents,
      are unconditional and absolute and not subject to any right of set off,
      counterclaim, delay or reduction, regardless of the effect of any such dilution
      or any claim the Company may have against any Purchaser and regardless of the
      dilutive effect that such issuance may have on the ownership of the other
      stockholders of the Company.

     

    4.3 Furnishing
      of Information.
      As long
      as any Purchaser owns Securities, the Company covenants to timely file (or
      obtain extensions in respect thereof and file within the applicable grace
      period) all reports required to be filed by the Company after the date hereof
      pursuant to the Exchange Act. As long as any Purchaser owns Securities, if
      the
      Company is not required to file reports pursuant to the Exchange Act, it will
      prepare and furnish to the Purchasers and make publicly available in accordance
      with Rule 144(c) such information as is required for the Purchasers to sell
      the
      Securities under Rule 144. The Company further covenants that it will take
      such
      further action as any holder of Securities may reasonably request, to the extent
      required from time to time to enable such Person to sell such Securities without
      registration under the Securities Act within the requirements of the exemption
      provided by Rule 144.

     

    4.4 Integration.
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers or that would be integrated with the offer
      or sale of the Securities for purposes of the rules and regulations of any
      Trading Market.

     

    4.5 Conversion
      and Exercise Procedures.
      The
      form of Notice of Exercise included in the Warrants and the form of Notice
      of
      Conversion included in the Debentures set
      forth
      the totality of the procedures required of the Purchasers in order to exercise
      the Warrants or convert the Debentures. No additional legal opinion or other
      information or instructions shall be required of the Purchasers to exercise
      their Warrants or convert their Debentures. 

     

    
      
        
        

      

      
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    4.6 Securities
      Laws Disclosure; Publicity.
      

     

    i.
      The
      Company shall, within 2 Trading Days of the date hereof, issue a Current Report
      on Form 8-K disclosing the material terms of the transactions contemplated
      hereby and attaching the Transaction Documents thereto (the “Form
      8-K”).
      The
      Company and each Purchaser shall consult with each other in issuing any other
      press releases with respect to the transactions contemplated hereby, and neither
      the Company nor any Purchaser shall issue any such press release or otherwise
      make any such public statement without the prior consent of the Company, with
      respect to any press release of any Purchaser, or without the prior consent
      of
      each Purchaser, with respect to any press release of the Company, which consent
      shall not unreasonably be withheld or delayed, except if such disclosure is
      required by law, in which case the disclosing party shall promptly provide
      the
      other party with prior notice of such public statement or communication.
      Notwithstanding the foregoing, the Company shall not publicly disclose the
      name
      of any Purchaser, or include the name of any Purchaser in any filing with the
      Commission or any regulatory agency or Trading Market, without the prior written
      consent of such Purchaser, except (i) as required by federal securities law
      in
      connection with (A) the Form 8-K, (B) any registration statement contemplated
      by
      the Registration Rights Agreement and (C) the filing of final Transaction
      Documents (including signature pages thereto) with the Commission and (ii)
      to
      the extent such disclosure is required by law or Trading Market regulations,
      in
      which case the Company shall provide the Purchasers with prior notice of such
      disclosure permitted under this subclause (ii).

     

    b) In
      the
      event that the Company shall, on or after the date hereof, provide any material
      nonpublic information (as such term is used in Regulation FD under the
      Securities Act) to any Purchaser without such Purchaser’s prior written consent
      or request, then, in addition to any other remedy provided herein or in the
      Transaction Documents, if such Purchaser shall request that the Company publicly
      disclose such information (a “Disclosure
      Request”),
      the
      Company shall, within 5 business days after receiving such Disclosure Request,
      either (i) make public disclosure of such information in a manner consistent
      with Rule 101(e) of Regulation FD or (ii) provide such Purchaser with a written
      statement that the Company does not believe that the information disclosed
      to
      such Purchaser is material nonpublic information or that it was delivered
      pursuant to the prior request or consent of such Purchaser.

     

    4.7 Shareholder
      Rights Plan.
      No
      claim will be made or enforced by the Company or, with the consent of the
      Company, any other Person, that any Purchaser is an “Acquiring Person” under any
      control share acquisition, business combination, poison pill (including any
      distribution under a rights agreement) or similar anti-takeover plan or
      arrangement in effect or hereafter adopted by the Company, or that any Purchaser
      could be deemed to trigger the provisions of any such plan or arrangement,
      by
      virtue of receiving Securities under the Transaction Documents or under any
      other agreement between the Company and the Purchasers.

     

    4.8 Non-Public
      Information.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company covenants and agrees
      that
      neither it nor any other Person acting on its behalf will provide any Purchaser
      or its agents or counsel with any information that the Company believes
      constitutes material non-public information, unless prior thereto such Purchaser
      shall have executed a written agreement regarding the confidentiality and use
      of
      such information. The Company understands and confirms that each Purchaser
      shall
      be relying on the foregoing representations in effecting transactions in
      securities of the Company.

     

    4.9 Use
      of
      Proceeds.
      Except
      as set forth on Schedule
      4.9
      attached
      hereto, the Company shall use the net proceeds from the sale of the Securities
      hereunder for working capital purposes and shall not use such proceeds for
      the
      satisfaction of any portion of the Company’s debt (other than payment of trade
      payables in the ordinary course of the Company’s business and prior practices),
      or to redeem any Common Stock or Common Stock Equivalents or to settle any
      outstanding litigation.

     

    4.10 Indemnification
      of Purchasers.
      Subject
      to the provisions of this Section 4.10, the Company will indemnify and hold
      each
      Purchaser and its directors, officers, shareholders, members, partners,
      employees and agents (and any other Persons with a functionally equivalent
      role
      of a Person holding such titles notwithstanding a lack of such title or any
      other title), each Person who controls such Purchaser (within the meaning of
      Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
      directors, officers, shareholders, agents, members, partners or employees (and
      any other Persons with a functionally equivalent role of a Person holding such
      titles notwithstanding a lack of such title or any other title) of such
      controlling person (each, a “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Purchaser Party may suffer or incur as a result
      of
      or relating to (a) any breach of any of the representations, warranties,
      covenants or agreements made by the Company in this Agreement or in the other
      Transaction Documents or (b) any action instituted against a Purchaser, or
      any
      of them or their respective Affiliates, by any stockholder of the Company who
      is
      not an Affiliate of such Purchaser, with respect to any of the transactions
      contemplated by the Transaction Documents (unless such action is based upon
      a
      breach of such Purchaser’s representations, warranties or covenants under the
      Transaction Documents or any agreements or understandings such Purchaser may
      have with any such stockholder or any violations by the Purchaser of state
      or
      federal securities laws or any conduct by such Purchaser which constitutes
      fraud, gross negligence, willful misconduct or malfeasance). If any action
      shall
      be brought against any Purchaser Party in respect of which indemnity may be
      sought pursuant to this Agreement, such Purchaser Party shall promptly notify
      the Company in writing, and the Company shall have the right to assume the
      defense thereof with counsel of its own choosing reasonably acceptable to the
      Purchaser Party. Any Purchaser Party shall have the right to employ separate
      counsel in any such action and participate in the defense thereof, but the
      fees
      and expenses of such counsel shall be at the expense of such Purchaser Party
      except to the extent that (i) the employment thereof has been specifically
      authorized by the Company in writing, (ii) the Company has failed after a
      reasonable period of time to assume such defense and to employ counsel or (iii)
      in such action there is, in the reasonable opinion of such separate counsel,
      a
      material conflict on any material issue between the position of the Company
      and
      the position of such Purchaser Party, in which case the Company shall be
      responsible for the reasonable fees and expenses of no more than one such
      separate counsel. The Company will not be liable to any Purchaser Party under
      this Agreement (i) for any settlement by a Purchaser Party effected without
      the
      Company’s prior written consent, which shall not be unreasonably withheld or
      delayed or (ii) to the extent, but only to the extent that a loss, claim, damage
      or liability is attributable to any Purchaser Party’s breach of any of the
      representations, warranties, covenants or agreements made by such Purchaser
      Party in this Agreement or in the other Transaction Documents.

     

    
      
        
        

      

      
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    4.11 Reservation
      and Listing of Securities.

     

    (a) The
      Company shall maintain a reserve from its duly authorized shares of Common
      Stock
      for issuance pursuant to the Transaction Documents in such amount as may be
      required to fulfill its obligations in full under the Transaction
      Documents.

     

    (b) If,
      on
      any date, the number of authorized but unissued (and otherwise unreserved)
      shares of Common Stock is less than the Required Minimum on such date, then
      the
      Board of Directors of the Company shall use commercially reasonable efforts
      to
      amend the Company’s certificate or articles of incorporation to increase the
      number of authorized but unissued shares of Common Stock to at least the
      Required Minimum at such time, as soon as possible and in any event not later
      than the 75th day after such date.

     

    
      
        
        

      

      
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    (c) The
      Company shall, if applicable: (i) in the time and manner required by the
      principal Trading Market, prepare and file with such Trading Market an
      additional shares listing application covering a number of shares of Common
      Stock at least equal to the Required Minimum on the date of such application,
      (ii) take all steps necessary to cause such shares of Common Stock to be
      approved for listing on such Trading Market as soon as possible thereafter,
      (iii) provide to the Purchasers evidence of such listing, and (iv) maintain
      the
      listing of such Common Stock on any date at least equal to the Required Minimum
      on such date on such Trading Market or another Trading Market.

     

    4.12 Participation
      in Future Financing.
      

     

    (a) From
      the
      date hereof until the date that is the 12 month anniversary of the Effective
      Date, upon any issuance by the Company or any of its Subsidiaries of Common
      Stock or Common Stock Equivalents (a “Subsequent
      Financing”),
      each
      Purchaser shall have the right to participate in up to an amount of the
      Subsequent Financing equal to the lesser of (i) 100% of the Subsequent Financing
      and (ii) $5,500,000 (the “Participation
      Maximum”)
      on the
      same terms, conditions and price provided for in the Subsequent Financing.
      

     

    (b) At
      least
      5 Trading Days prior to the closing of the Subsequent Financing, the Company
      shall deliver to each Purchaser a written notice of its intention to effect
      a
      Subsequent Financing (“Pre-Notice”),
      which
      Pre-Notice shall ask such Purchaser if it wants to review the details of such
      financing (such additional notice, a “Subsequent
      Financing Notice”).
      Upon
      the request of a Purchaser, and only upon a request by such Purchaser, for
      a
      Subsequent Financing Notice, the Company shall promptly, but no later than
      1
      Trading Day after such request, deliver a Subsequent Financing Notice to such
      Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
      the proposed terms of such Subsequent Financing, the amount of proceeds intended
      to be raised thereunder and the Person or Persons through or with whom such
      Subsequent Financing is proposed to be effected and shall include a term sheet
      or similar document relating thereto as an attachment. 

     

    (c) Any
      Purchaser desiring to participate in such Subsequent Financing must provide
      written notice to the Company by not later than 5:30 p.m. (New York City time)
      on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice that the Purchaser
      is willing to participate in the Subsequent Financing, the amount of the
      Purchaser’s participation, and that the Purchaser has such funds ready, willing,
      and available for investment on the terms set forth in the Subsequent Financing
      Notice. If the Company receives no notice from a Purchaser as of such
      5th
      Trading
      Day, such Purchaser shall be deemed to have notified the Company that it does
      not elect to participate. 

     

    
      
        
        

      

      
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    (d) If
      by
      5:30 p.m. (New York City time) on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice, notifications
      by
      the Purchasers of their willingness to participate in the Subsequent Financing
      (or to cause their designees to participate) is, in the aggregate, less than
      the
      total amount of the Subsequent Financing, then the Company may effect the
      remaining portion of such Subsequent Financing on the terms and with the Persons
      set forth in the Subsequent Financing Notice. 

     

    (e) If
      by
      5:30 p.m. (New York City time) on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice, the Company
      receives responses to a Subsequent Financing Notice from Purchasers seeking
      to
      purchase more than the aggregate amount of the Participation Maximum, each
      such
      Purchaser shall have the right to purchase their Pro Rata Portion (as defined
      below) of the Participation Maximum.  “Pro
      Rata Portion”
means
      the ratio of (x) the Subscription Amount of Securities purchased on the Closing
      Date by a Purchaser participating under this Section 4.12 and (y) the sum of
      the
      aggregate Subscription Amounts of Securities purchased on the Closing Date
      by
      all Purchasers participating under this Section 4.12.

     

    (f) The
      Company must provide the Purchasers with a second Subsequent Financing Notice,
      and the Purchasers will again have the right of participation set forth above
      in
      this Section 4.12, if the Subsequent Financing subject to the initial Subsequent
      Financing Notice is not consummated for any reason on the terms set forth in
      such Subsequent Financing Notice within 60 Trading Days after the date of the
      initial Subsequent Financing Notice. 

     

    (g) Notwithstanding
      the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt
      Issuance or (ii) an underwritten public offering of Common Stock.

     

    4.13 Subsequent
      Equity Sales.
      

     

    (a) From
      the
      date hereof until 90 days after the Effective Date, neither the Company nor
      any
      Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
      provided,
      however,
      the 90
      day period set forth in this Section 4.13 shall be extended for the number
      of
      Trading Days during such period in which (i) trading in the Common Stock is
      suspended by any Trading Market, or (ii) following the Effective Date, the
      Registration Statement is not effective or the prospectus included in the
      Registration Statement may not be used by the Purchasers for the resale of
      the
      Underlying Shares. 

     

    (b) From
      the
      date hereof until such time as no Purchaser holds any of the Securities, the
      Company shall be prohibited from effecting or entering into an agreement to
      effect any Subsequent Financing involving a Variable Rate Transaction.
“Variable
      Rate Transaction”
means
      a
      transaction in which the Company issues or sells (i) any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (A) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities, or
      (B)
      with a conversion, exercise or exchange price that is subject to being reset
      at
      some future date after the initial issuance of such debt or equity security
      or
      upon the occurrence of specified or contingent events directly or indirectly
      related to the business of the Company or the market for the Common Stock or
      (ii) enters into any agreement, including, but not limited to, an equity line
      of
      credit, whereby the Company may sell securities at a future determined price.
      

     

    
      
        
        

      

      
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    (c) Notwithstanding
      the foregoing, this Section 4.13 shall not apply in respect of an Exempt
      Issuance, except that no Variable Rate Transaction shall be an Exempt
      Issuance. 

     

    4.14 Equal
      Treatment of Purchasers.
      No
      consideration shall be offered or paid to any Person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Documents
      unless the same consideration is also offered to all of the parties to the
      Transaction Documents. Further, the Company shall not make any payment of
      principal or interest on the Debentures in amounts which are disproportionate
      to
      the respective principal amounts outstanding on the Debentures at any applicable
      time. For clarification purposes, this provision constitutes a separate right
      granted to each Purchaser by the Company and negotiated separately by each
      Purchaser, and is intended for the Company to treat the Purchasers as a class
      and shall not in any way be construed as the Purchasers acting in concert or
      as
      a group with respect to the purchase, disposition or voting of Securities or
      otherwise.

     

    4.15 Short
      Sales and Confidentiality After The Date Hereof.
      Each
      Purchaser severally and not jointly with the other Purchasers covenants that
      neither it nor any Affiliate acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period commencing
      at the Discussion Time and ending at the time that the transactions contemplated
      by this Agreement are first publicly announced as described in Section 4.6.
      Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 4.6, such Purchaser will
      maintain the confidentiality of all disclosures made to it in connection with
      this transaction (including the existence and terms of this transaction). Each
      Purchaser understands and acknowledges, severally and not jointly with any
      other
      Purchaser, that the Commission currently takes the position that coverage of
      short sales of shares of the Common Stock “against the box” prior to the
      Effective Date of the Registration Statement with the Securities is a violation
      of Section 5 of the Securities Act, as set forth in Item 65, Section A, of
      the
      Manual of Publicly Available Telephone Interpretations, dated July 1997,
      compiled by the Office of Chief Counsel, Division of Corporation Finance.
      Notwithstanding the foregoing, no Purchaser makes any representation, warranty
      or covenant hereby that it will not engage in Short Sales in
      the
      securities of the Company after the time that the transactions contemplated
      by
      this Agreement are first publicly announced as described in Section 4.6.
      Notwithstanding the foregoing, in the case of a Purchaser that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Purchaser's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Purchaser's assets, the covenant set forth
      above
      shall only apply with respect to the portion of assets managed by the portfolio
      manager that made the investment decision to purchase the Securities covered
      by
      this Agreement.

     

    
      
        
        

      

      
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    4.16 Form
      D; Blue Sky Filings.
      The
      Company agrees to timely file a Form D with respect to the Securities as
      required under Regulation D and to provide a copy thereof, promptly upon request
      of any Purchaser. The Company shall take such action as the Company shall
      reasonably determine is necessary in order to obtain an exemption for, or to
      qualify the Securities for, sale to the Purchasers at the Closing under
      applicable securities or “Blue Sky” laws of the states of the United States, and
      shall provide evidence of such actions promptly upon request of any
      Purchaser.

     

    4.17 Capital
      Changes.
      Until
      the one year anniversary of the Effective Date, the Company shall not undertake
      a reverse stock split or reclassification of the Common Stock without the prior
      written consent of the Purchasers holding a majority in principal amount
      outstanding of the Debentures except for a reverse stock split directly related
      to the Company’s listing of the Common Stock on a Trading Market other than the
      OTC Bulletin Board or the American Stock Exchange.

     

    4.18 Officers
      and Directors Insurance.
      Within
      60 days of the date hereof, the Company shall have obtained directors and
      officers insurance coverage at least equal to $5 million.

     

    ARTICLE
      V.

    MISCELLANEOUS

     

    5.1 Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder by written notice to the other parties, if the Closing
      has
      not been consummated on or before January 19, 2007; provided,
      however,
      that
      such termination will not affect the right of any party to sue for any breach
      by
      the other party (or parties).

     

    5.2 Fees
      and Expenses.
      At the
      Closing, the Company has agreed to reimburse Truk Opportunity Fund, LLC
      (“Truk
      Opportunity”)
      the
      non-accountable sum of $25,000 for its legal fees and expenses, $15,000 of
      which
      has been paid prior to the Closing. Accordingly, in lieu of the foregoing
      payments, the aggregate amount that Truk Opportunity is to pay for the
      Securities at the Closing shall be reduced by $10,000 in lieu thereof. Except
      as
      expressly set forth in the Transaction Documents to the contrary, each party
      shall pay the fees and expenses of its advisers, counsel, accountants and other
      experts, if any, and all other expenses incurred by such party incident to
      the
      negotiation, preparation, execution, delivery and performance of this Agreement.
      The Company shall pay all transfer agent fees, stamp taxes and other taxes
      and
      duties levied in connection with the delivery of any Securities to the
      Purchasers at the Closing.

     

    5.3 Entire
      Agreement.
      The
      Transaction Documents, together with the exhibits and schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements and understandings, oral or written,
      with respect to such matters, which the parties acknowledge have been merged
      into such documents, exhibits and schedules.

     

    5.4 Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number set forth on the signature
      pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
      Day,
      (b) the next Trading Day after the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number set forth
      on
      the signature pages attached hereto on a day that is not a Trading Day or later
      than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
      Trading
      Day following the date of mailing, if sent by U.S. nationally recognized
      overnight courier service, or (d) upon actual receipt by the party to whom
      such
      notice is required to be given. The address for such notices and communications
      shall be as set forth on the signature pages attached hereto.

     

    5.5 Amendments;
      Waivers.
      No
      provision of this Agreement may be waived, modified, supplemented or amended
      except in a written instrument signed, in the case of an amendment, by the
      Company and Purchasers holding at least 67% of the then outstanding Securities
      or, in the case of a waiver, by the party against whom enforcement of any such
      waived provision is sought. No waiver of any default with respect to any
      provision, condition or requirement of this Agreement shall be deemed to be
      a
      continuing waiver in the future or a waiver of any subsequent default or a
      waiver of any other provision, condition or requirement hereof, nor shall any
      delay or omission of any party to exercise any right hereunder in any manner
      impair the exercise of any such right.

     

    
      
        
        

      

      
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    5.6 Headings.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    5.7 Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of each Purchaser (other than by merger). Any Purchaser may assign
      any
      or all of its rights under this Agreement to any Person to whom such Purchaser
      assigns or transfers any Securities, provided such transferee agrees in writing
      to be bound, with respect to the transferred Securities, by the provisions
      of
      the Transaction Documents that apply to the “Purchasers”.

     

    5.8 No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.10.

     

    5.9 Governing
      Law; Arbitration.
      This
      Agreement shall be governed by and construed in accordance with the internal
      laws of the State of New York. Any controversy or claim arising out of or
      related to this Agreement or the breach thereof, shall be settled by binding
      arbitration in New York, New York in accordance with the Expedited Procedures
      (Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
      Association (“AAA”).
      A
      proceeding shall be commenced upon written demand by the Company or Purchaser
      to
      the other. The arbitrator(s) shall enter a judgment by default against any
      party, which fails or refuses to appear in any properly noticed arbitration
      proceeding. The proceeding shall be conducted by one (1) arbitrator, unless
      the
      amount alleged to be in dispute exceeds two hundred fifty thousand dollars
      ($250,000), in which case three (3) arbitrators shall preside. The arbitrator(s)
      will be chosen by the parties from a list provided by the AAA, and if the
      parties are unable to agree within ten (10) days, the AAA shall select the
      arbitrator(s). The arbitrators must be experts in securities law and financial
      transactions. The arbitrators shall assess costs and expenses of the
      arbitration, including all attorneys’ and experts’ fees, as the arbitrators
      believe is appropriate in light of the merits of the parties’ respective
      positions in the issues in dispute. Each party submits irrevocably to the
      jurisdiction of any state court sitting in New York, New York or to the United
      States District Court sitting in New York, New York for purposes of enforcement
      of any discovery order, judgment or award in connection with such arbitration.
      The award of the arbitrator(s) shall be final and binding upon the parties
      and
      may be enforced in any court having jurisdiction. The arbitration shall be
      held
      in such place as set by the arbitrator(s) in accordance with Rule 55. With
      respect to any arbitration proceeding in accordance with this section, the
      prevailing party’s reasonable attorney’s fees and expenses shall be borne by the
      non-prevailing party.

     

    
      
        
        

      

      
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    Although
      the parties, as expressed above, agree that all claims, including claims that
      are equitable in nature, for example specific performance, shall initially
      be
      prosecuted in the binding arbitration procedure outlined above, if the
      arbitration panel dismisses or otherwise fails to entertain any or all of the
      equitable claims asserted by reason of the fact that it lacks jurisdiction,
      power and/or authority to consider such claims and/or direct the remedy
      requested, then, in only that event, will the parties have the right to initiate
      litigation respecting such equitable claims or remedies. The forum for such
      equitable relief shall be in either a state or federal court sitting in New
      York, New York. Each party waives any right to a trial by jury, assuming such
      right exists in an equitable proceeding, and irrevocably submits to the
      jurisdiction of said New York court. New York law shall govern both the
      proceeding as well as the interpretation and construction of this Agreement
      and
      the transaction as a whole.

     

    5.10 Survival.
      The
      representations and warranties shall survive the Closing and the delivery of
      the
      Securities for the applicable statue of limitations.

     

    5.11 Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission or by e-mail delivery of a “.pdf” format data file, such signature
      shall create a valid and binding obligation of the party executing (or on whose
      behalf such signature is executed) with the same force and effect as if such
      facsimile or “.pdf” signature page were an original thereof.

     

    5.12 Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

     

    
      
        
        

      

      
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    5.13 Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) any of the other Transaction Documents, whenever any
      Purchaser exercises a right, election, demand or option under a Transaction
      Document and the Company does not timely perform its related obligations within
      the periods therein provided, then such Purchaser may rescind or withdraw,
      in
      its sole discretion from time to time upon written notice to the Company, any
      relevant notice, demand or election in whole or in part without prejudice to
      its
      future actions and rights; provided,
      however,
      in the
      case of a rescission of a conversion of a Debenture or exercise of a Warrant,
      the Purchaser shall be required to return any shares of Common Stock delivered
      in connection with any such rescinded conversion or exercise
      notice.

     

    5.14 Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall issue or cause to be issued in exchange and
      substitution for and upon cancellation thereof (in the case of mutilation),
      or
      in lieu of and substitution therefor, a new certificate or instrument, but
      only
      upon receipt of evidence reasonably satisfactory to the Company of such loss,
      theft or destruction. The applicant for a new certificate or instrument under
      such circumstances shall also pay any reasonable third-party costs (including
      customary indemnity) associated with the issuance of such replacement
      Securities.

     

    5.15 Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Company
      will
      be entitled to specific performance under the Transaction Documents. The parties
      agree that monetary damages may not be adequate compensation for any loss
      incurred by reason of any breach of obligations contained in the Transaction
      Documents and hereby agrees to waive and not to assert in any action for
      specific performance of any such obligation the defense that a remedy at law
      would be adequate. 

     

    5.16 Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to any Purchaser pursuant
      to
      any Transaction Document or a Purchaser enforces or exercises its rights
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, a trustee,
      receiver or any other person under any law (including, without limitation,
      any
      bankruptcy law, state or federal law, common law or equitable cause of action),
      then to the extent of any such restoration the obligation or part thereof
      originally intended to be satisfied shall be revived and continued in full
      force
      and effect as if such payment had not been made or such enforcement or setoff
      had not occurred.

     

    5.17 Usury.
      To the
      extent it may lawfully do so, the Company hereby agrees not to insist upon
      or
      plead or in any manner whatsoever claim, and will resist any and all efforts
      to
      be compelled to take the benefit or advantage of, usury laws wherever enacted,
      now or at any time hereafter in force, in connection with any claim, action
      or
      proceeding that may be brought by any Purchaser in order to enforce any right
      or
      remedy under any Transaction Document. Notwithstanding any provision to the
      contrary contained in any Transaction Document, it is expressly agreed and
      provided that the total liability of the Company under the Transaction Documents
      for payments in the nature of interest shall not exceed the maximum lawful
      rate
      authorized under applicable law (the “Maximum
      Rate”),
      and,
      without limiting the foregoing, in no event shall any rate of interest or
      default interest, or both of them, when aggregated with any other sums in the
      nature of interest that the Company may be obligated to pay under the
      Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
      contract rate of interest allowed by law and applicable to the Transaction
      Documents is increased or decreased by statute or any official governmental
      action subsequent to the date hereof, the new maximum contract rate of interest
      allowed by law will be the Maximum Rate applicable to the Transaction Documents
      from the effective date forward, unless such application is precluded by
      applicable law. If under any circumstances whatsoever, interest in excess of
      the
      Maximum Rate is paid by the Company to any Purchaser with respect to
      indebtedness evidenced by the Transaction Documents, such excess shall be
      applied by such Purchaser to the unpaid principal balance of any such
      indebtedness or be refunded to the Company, the manner of handling such excess
      to be at such Purchaser’s election.

     

    
      
        
        

      

      
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    5.18 Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance or non-performance of the obligations
      of any other Purchaser under any Transaction Document. Nothing contained herein
      or in any other Transaction Document, and no action taken by any Purchaser
      pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
      an association, a joint venture or any other kind of entity, or create a
      presumption that the Purchasers are in any way acting in concert or as a group
      with respect to such obligations or the transactions contemplated by the
      Transaction Documents. Each Purchaser shall be entitled to independently protect
      and enforce its rights, including without limitation the rights arising out
      of
      this Agreement or out of the other Transaction Documents, and it shall not
      be
      necessary for any other Purchaser to be joined as an additional party in any
      proceeding for such purpose. Each Purchaser has been represented by its own
      separate legal counsel in their review and negotiation of the Transaction
      Documents. For reasons of administrative convenience only, Purchasers and their
      respective counsel have chosen to communicate with the Company through FWS.
      FWS
      does not represent all of the Purchasers but only Truk Opportunity. The Company
      has elected to provide all Purchasers with the same terms and Transaction
      Documents for the convenience of the Company and not because it was required
      or
      requested to do so by the Purchasers.

     

    5.19 Liquidated
      Damages.
      The
      Company’s obligations to pay any partial liquidated damages or other amounts
      owing under the Transaction Documents is a continuing obligation of the Company
      and shall not terminate until all unpaid partial liquidated damages and other
      amounts have been paid notwithstanding the fact that the instrument or security
      pursuant to which such partial liquidated damages or other amounts are due
      and
      payable shall have been canceled.

     

    5.20 Construction.
      The
      parties agree that each of them and/or their respective counsel has reviewed
      and
      had an opportunity to revise the Transaction Documents and, therefore, the
      normal rule of construction to the effect that any ambiguities are to be
      resolved against the drafting party shall not be employed in the interpretation
      of the Transaction Documents or any amendments hereto.

     

    (Signature
      Pages Follow)

     

    
      
        
        

      

      
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    IN
      WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
      Agreement to be duly executed by their respective authorized signatories as
      of
      the date first indicated above.

     

    
      	
              SOLOMON
                TECHNOLOGIES, INC.

               

            	 	
              Address
                for Notice:

            
	
              By:__________________________________________

               
                Name:

               
                Title:

            	 	
              1400
                L&R Industrial Blvd.

              Tarpon
                Springs, Florida 34689

              Facsimile:
                (727) 934-8779

              Attention:
                Peter W. De Vecchis, Jr., President

               

            
	
              With
                a copy to (which shall not constitute notice):

              Davis
                & Gilbert LLP

              1740
                Broadway

              New
                York, New York 10019

              Facsimile:
                (212) 468-4888

              Attention:
                Ralph W. Norton

            	 	 

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    [PURCHASER
      SIGNATURE PAGES TO SOLM SECURITIES PURCHASE AGREEMENT]

    

    IN
      WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
      to be duly executed by their respective authorized signatories as of the date
      first indicated above.

     

    Name
      of
      Purchaser:
      ___________________________________________________________________________

     

    Signature
      of Authorized Signatory of Purchaser:
      _______________________________________________________

     

    Name
      of
      Authorized Signatory:
      ________________________________________________________________________

     

    Title
      of
      Authorized Signatory:
      _________________________________________________________________________

     

    Email
      Address of Purchaser:
      ____________________________________________________________________

     

    Facsimile
      Number of Purchaser:
      _____________________________________________________________________

    

    Address
      for Notice of Purchaser:

     

    

    Address
      for Delivery of Securities for Purchaser (if not same as above):

     

    

    

    Subscription
      Amount: __________________

    

    Warrant
      Shares: _______________________

     

    EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

    

    [SIGNATURE
      PAGES CONTINUE]

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

      

        Disclosure
          Schedules 

        to
          the Securities Purchase Agreement 

        dated
          as of January 17, 2007 by and among Solomon Technologies, Inc. and

        each
          of the Purchasers identified on the signature pages thereto

        

        Capitalized
          terms used but not otherwise defined in these Disclosure Schedules shall
          have
          the same meanings ascribed to such terms in the Securities Purchase Agreement
          dated as of January 17, 2007 by and among Solomon Technologies, Inc. and
          each of
          the purchasers identified on the signature pages thereto (the “Purchase
          Agreement”).

        

        Nothing
          in these Disclosure Schedules is intended to broaden the scope of any
          representation or warranty of the Company or to create any covenant on
          the part
          of the Company. Further, inclusion of information herein shall not be construed
          as an admission that such information is material to the condition of the
          Company. Any matter disclosed on any part of these Disclosure Schedules
          shall be
          deemed disclosed for purposes of every part of these Disclosure Schedules
          to the
          extent the applicability of such disclosure to such other paragraphs or
          parts of
          the Disclosure Schedules is reasonably apparent on its face.

        

        Where
          the
          terms of an agreement or other disclosure item have been summarized or
          described
          in these Disclosure Schedules, such summary or description does not purport
          to
          be a complete statement of the material terms of such agreement or other
          item.

        

        
          
            
            

          

          
            1

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(a)

        Subsidiaries

        

        The
          following are wholly-owned subsidiaries of the Company:

         

        
          	 	
                  §

                	
                  Technipower,
                    LLC, a Delaware limited liability
                    company

                

        

        
          	 	
                  §

                	
                  Town
                    Creek Industries, Inc., a Maryland
                    corporation

                

        

        

        The
          stock
          of each subsidiary is security for the Company’s senior loan obligations
          identified in Sections 3.1(n), 3.1(aa) and 3.1(ff) of these Disclosure
          Schedules.

        

        
          
            
            

          

          
            2

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(b)

        Organization
          and Qualification

        

        Town
          Creek Industries, Inc. was forfeited in Maryland on October 7, 2005 for
          failure
          to file the 2004 Personal Property Return, which was due April 15, 2004.
          In
          order to return to active, good standing status Town Creek Industries,
          Inc. must
          file 2004, 2005 and 2006 Property Returns and Articles of Revival in
          Maryland.

        

        
          
            
            

          

          
            3

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(g)

        Capitalization

        

        Immediately
          prior to the Closing, the authorized capital stock of the Company will
          consist
          of an aggregate of 100,000,000 shares of Common Stock and an aggregate
          of
          12,500,000 shares of Preferred Stock of which 4,700,000 shares have been
          designated Series C preferred stock. Immediately prior to the Closing,
          the
          Company will have issued and outstanding 4,615,381 shares of Series C preferred
          stock and, to the Company’s best knowledge, 33,755,987 shares of Common Stock.
          There is some uncertainty about the precise number of shares of Common
          Stock
          outstanding because the Company changed transfer agents in November 2003
          and the
          Company’s recordkeeping prior to a change in management in May 2004 was
          deficient. Since May 2004 there have been a few instances in which holders
          have
          presented stock certificates for small numbers of shares that were not
          included
          on the current transfer agent’s records. With respect to any issuances of stock
          prior to May 2004, the Company cannot verify whether or not any shares
          were
          issued in violation of any preemptive rights or similar rights to subscribe
          for
          or purchase securities.

        

        In
          connection with the Company’s issuance of $140,085 in principal amount of senior
          secured promissory notes in October 2006, the Company has promised to issue
          to
          each purchaser of notes an amount of shares of Common Stock calculated
          by
          dividing $20,000 by the closing market price of the Company’s common stock on
          the trading day preceding the day on which the notes are purchased for
          each
          $100,000 in principal amount of notes, or fraction thereof, purchased.
          

        

        In
          connection with a consulting arrangement with David B. Stout Associates,
          LLC,
          Stout Associates has agreed to provide certain marketing consulting services
          to
          the Company in exchange for a consulting fee of $1,500 per day or $187
          per hour,
          subject to possible discounts for long term assignments. Stout Associates
          has
          agreed to accept payment for up to 1/3 of its chargeable time in the form
          of
          shares of Common Stock of the Company. As of December 5, 2006, the Company
          had
          committed to issue Common Stock valued at $1,437.50.

        

        The
          Company has entered into an agreement with the holders of the Company’s senior
          secured promissory notes having an aggregate principal amount of $1,712,085
          to
          extend the maturity date of the notes from January 15, 2007 to September
          30,
          2007. In consideration of the noteholders agreeing to extend the maturity
          date
          of the notes, at the noteholder’s option, the Company intends to either (i)
          issue shares of common stock of the Company in an amount equal to 10,000
          shares
          for each $100,000 in principal amount of notes, or fraction thereof, held
          by
          such noteholder or (ii) paying such noteholder an amount in cash equal
          to 5% of
          the principal amount of the notes, or fraction thereof, held by such noteholder
          in lieu of such shares.

        

        The
          Company has agreed to issue Neal Brown 10,000 shares of Common Stock in
          settlement of legal fees owed.

        

        The
          Company has entered into a Redemption and Conversion Agreement with the
          holders
          of the outstanding shares of Series C preferred stock pursuant to which,
          immediately following the Closing, the Company will utilize $3,349,997.68
          of the
          net proceeds of the sale of the Debentures and Warrants to redeem, on a
          pro-rata
          basis, that number of whole shares of Series C Preferred Stock as may be
          redeemed with such funds at a redemption price of $1.1375 per share plus
          accrued
          dividends through the date of payment (the “Partial Redemption”). Concurrently
          with the Partial Redemption, the Company will effect the conversion of
          each
          share of Series C preferred stock that is not redeemed into one share of
          Common
          Stock. The persons to whom at least 90% of the shares of Common Stock will
          be
          issued have agreed to a 24 month lockup as described in Section 2.2(a)(vii)
          of
          the Purchase Agreement.

        

        
          
            
            

          

          
            4

            
              

            

          

          
            
            

          

           

          Assuming
            a Closing and Partial Redemption on January 17, 2007, the Company will
            redeem an
            aggregate of 2,875,012 shares of Series C preferred stock and convert
            an
            aggregate of 1,740,369.27 shares of Series C preferred stock into an
            aggregate
            of 1,740,360 shares of Common Stock (“Conversion Shares”) and $22.49 in cash for
            fractional shares (the cash amount assumes a market price for the Common
            Stock
            on such date of $2.48 per share). The following schedule sets forth the
            names of
            the holders and the number of Conversion Shares to be issued to each
            such
            holder:

        

        
          

          
            	
                    Name
                      of Holder

                  	 	
                    Conversion
                      Shares

                  	 
	
                    Power
                      Designs Inc.

                  	 	 	
                    732,974

                  	 
	
                    Integrated
                      Power Systems LLC

                  	 	 	
                    732,974

                  	 
	
                    Vantage
                      Partners LLC

                  	 	 	
                    6,107

                  	 
	
                    Allison
                      Bertorelli 

                  	 	 	
                    16,079

                  	 
	
                    Anthony
                      Intino

                  	 	 	
                    22,101

                  	 
	
                    Mariano
                      Moran

                  	 	 	
                    15,054

                  	 
	
                    Bril
                      Profit Sharing Plan

                  	 	 	
                    9,281

                  	 
	
                    Halstead

                  	 	 	
                    6,021

                  	 
	
                    International
                      Capital Partners

                  	 	 	
                    13,381

                  	 
	
                    JMC
                      Venture Partners

                  	 	 	
                    80,870

                  	 
	
                    Mark
                      Sadinsky

                  	 	 	
                    240

                  	 
	
                    Estate
                      of Robert Sparacino

                  	 	 	
                    1,511

                  	 
	
                    Woodlaken
                      LLC

                  	 	 	
                    6,193

                  	 
	
                    Jonathan
                      Betts

                  	 	 	
                    13,247

                  	 
	
                    Michael
                      D’Amelio

                  	 	 	
                    25,291

                  	 
	
                    Raymond
                      Joslin

                  	 	 	
                    14,477

                  	 
	
                    Gary
                      Laskowski

                  	 	 	
                    31,312

                  	 
	
                    Shannon
                      LeRoy

                  	 	 	
                    13,247

                  	 
	
                    TOTAL

                  	 	 	
                    1,740,360

                  	 

          

           

        

        Pursuant
          to the Securities Purchase Agreement dated as of August 17, 2006 by and
          among
          the Company, Technipower LLC and the former owners of Technipower LLC (the
          “Sellers”), in respect of any shares of Common Stock that are held as of August
          17, 2007 by any Seller (“Retained Shares”), if the market price of the Common
          Stock as of August 17, 2007 (the “Post-Closing Stock Price”) is less than the
          $0.65 per share market price of the Common Stock on August 17, 2006 (the
          “Closing Stock Price”), and such difference represents more than 5% of the
          Closing Stock Price, the Company must either, at its option:

        

        (i)
          issue
          additional shares of Common Stock equal to the number determined by multiplying
          the Closing Stock Price by the number of Retained Shares, then (y) dividing
          the
          result in (x) by the Post-Closing Stock Price and (z) subtracting from
          such
          amount the number of Retained Shares, or 

        

        
          
            
            

          

          
            5

            
              

            

          

          
            
            

          

           

        

        (ii)
          in
          lieu of issuance of the Additional Shares, pay an amount in cash equal
          to the
          result of (x) the number of Additional Shares multiplied by (y) the Post-Closing
          Stock Price.

        

        The
          following is a list of outstanding option and warrants of the
          Company:

        

        
          	
                  Name
                    of Option Holder

                	 	
                  Number
                    of Shares of Common Stock Subject to Options:

                	 	
                  Exercise
                    Price

                
	
                  David
                    Tether

                	 	
                  115,000
                    shares

                  47,807
                    shares

                  26,810
                    shares

                	 	
                  $2.00

                  $1.00

                  $1.00

                
	
                  Barry
                    DeGroot

                	 	
                  10,000
                    shares

                	 	
                  $2.00

                
	
                  David
                    Lindahl

                	 	
                  10,000
                    shares

                  25,000
                    shares

                	 	
                  $2.00

                  $0.55

                
	
                  Jane
                    Crawford

                	 	
                  27,500
                    shares

                  13,218
                    shares

                	 	
                  $2.00

                  $1.00

                
	
                  Charlie
                    Shannon

                	 	
                  150,000
                    shares

                  50,000
                    shares

                	 	
                  $1.00

                  $2.00

                
	
                  Robert
                    Caper

                	 	
                  17,500
                    shares

                	 	
                  $1.00

                
	
                  Jonathan
                    Betts

                	 	
                  25,000
                    shares

                	 	
                  $0.55

                
	
                  Gary
                    Laskowski

                	 	
                  25,000
                    shares

                	 	
                  $0.55

                
	
                  Michael
                    D’Amelio

                	 	
                  25,000
                    shares

                	 	
                  $0.55

                
	
                  Andy
                    Christian 

                	 	
                  40,000
                    shares

                  40,000
                    shares

                	 	
                  $2.09

                  $1.45

                
	
                  Peter
                    W. DeVecchis Jr.

                	 	
                  100,000
                    shares

                  100,000
                    shares

                	 	
                  $2.09

                  $1.45

                
	
                  Alex
                    Pesiridis

                	 	
                  40,000
                    shares

                  40,000
                    shares

                	 	
                  $2.09

                  $1.45

                
	
                  Jammie
                    Stafford

                	 	
                  15,000
                    shares

                  15,000
                    shares

                	 	
                  $2.09

                  $1.45

                
	
                  Samuel
                    Occhipinti

                	 	
                  75,000
                    shares

                	 	
                  $1.45

                
	
                  Total:

                	 	
                  1,032,835
                    shares

                	 	 

        

        

        
          
            
            

          

          
            6

            
              

            

          

          
            
            

          

           

        

        
          	
                  Name
                    of Warrant Holder

                	 	
                  Number
                    of Shares of Common Stock Issuable Upon Exercise of
                    Warrants:

                	 	
                  Exercise
                    Price

                
	
                  John
                    J. Gilece

                	 	
                  1,717

                	 	
                  $3.78

                
	
                  C.
                    Stevens Avery II

                	 	
                  1,717

                	 	
                  $3.78

                
	
                  Park
                    R. Dougherty

                	 	
                  3,435

                	 	
                  $3.78

                
	
                  Tammy
                    S. McCutcheon

                	 	
                  3,435

                	 	
                  $3.78

                
	
                  Neal
                    Petersen

                	 	
                  3,435

                	 	
                  $3.78

                
	
                  John
                    Hofford

                	 	
                  3,435

                	 	
                  $3.78

                
	
                  Hugh
                    Murray

                	 	
                  150,000

                	 	
                  $2.00

                
	
                  Charles
                    County EDC

                	 	
                  10,000

                	 	
                  $4.00

                
	
                  Investor
                    Awareness

                	 	
                  50,000

                	 	
                  $3.15

                
	
                  Fred
                    Halbig

                	 	
                  6,000

                	 	
                  $4.00

                
	
                  James
                    Prescott

                	 	
                  10,000

                	 	
                  $4.00

                
	
                  John
                    Kirkwood

                	 	
                  5,000

                	 	
                  $4.00

                
	
                  John
                    Lamere

                	 	
                  5,000

                	 	
                  $4.00

                
	
                  Davis
                    & Gilbert LLP

                	 	
                  200,000

                	 	
                  $1.73*

                
	
                  Total:

                	 	
                  453,174
                    shares

                	 	 

        

        

        *If
          on
          the trading date immediately prior to the date that the Company’s first
          registration statement on Form SB-2 that is filed after the Original Issue
          Date
          and in which the Warrant Shares are included is declared effective by the
          Securities and Exchange Commission the closing price per share of common
          stock
          as reported by the OTCBB is less than $1.73, then the per share Exercise
          Price
          will be reduced to an amount equal to such closing price, but in no event
          less
          than $1.00 per share.

         

        The
          Company has agreed to issue 290,000 shares of Common Stock to Ardour Capital
          Investments, LLC (“Ardour”) upon the closing of the transactions contemplated by
          the Purchase Agreement. See Schedule 3.1(s).

         

        The
          Company has agreed that upon the closing of the transactions contemplated
          by the
          Purchase Agreement it will issue 46,296 shares of Common Stock to its counsel,
          Davis & Gilbert LLP (“D&G”) as a retainer for future work.

        
           

          
            
            

          

          
            7

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(h)

        SEC
          Reports; Financial Statements

        

        On
          November 21, 2006, the Company received a comment letter from the Commission
          in
          response to the Company’s registration statement on Form SB-2 that was filed
          with the Commission on October 27, 2006. The comment letter included 49
          comments, all of which pertained to the Company’s financial statements and
          MD&A. It is expected that the Company may need to amend some of its recent
          reports filed under the Exchange Act, including the financial statements
          included therein. The amendments may include a restatement that would have
          the
          effect of reducing interest expense in 2004 and 2005 by approximately $4.6
          million and increasing loss on conversion of the Company’s Series A preferred
          stock in 2006 by approximately the same amount.

         

        The
          amendments may also include a restatement of the Company’s financial statements
          for the third quarter of 2006 that would have the effect, among other things,
          of
          reducing the accumulated deficit at September 30, 2006 by $1,004,136 and
          reducing the loss attributable to common stockholders for the quarter ended
          on
          such date by $1,063,836, all as described in Note 2 to the Company’s unaudited
          financial statements for the quarter ended September 30, 2006 included
          in
          Amendment No. 1 to its registration statement on Form SB-2, File No. 333-138240,
          as filed with the Commission on January 11, 2007.

        

        
          
            
            

          

          
            8

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(i)

        Material
          Changes

        

        On
          November 21, 2006, the Company received a comment letter from the Commission
          in
          response to the Company’s registration statement on Form SB-2 that was filed
          with the Commission on October 27, 2006. The comment letter included 49
          comments, all of which pertained to the Company’s financial statements and
          MD&A. It is expected that the Company may need to amend some of its recent
          reports filed under the Exchange Act, including the financial statements
          included therein. The amendments may include a restatement that would have
          the
          effect of reducing interest expense in 2004 and 2005 by approximately $4.6
          million and increasing loss on conversion of the Company’s Series A preferred
          stock in 2006 by approximately the same amount.

        

        On
          October 31, 2006, the Company borrowed $30,085 from Steven Kilponen and
          issued a
          promissory note in such principal amount to Mr. Kilponen. The new note
          bears
          interest at a rate of 12% per annum and matures on January 15, 2007. The
          Company
          is currently negotiating an extension of the note to September 30, 2007.
          The new
          note has substantially the same terms as the senior secured promissory
          notes in
          the aggregate principal amount of $1,682,000 and with such notes is secured
          by a
          first priority security interest in all of the tangible and intangible
          assets of
          the Company.

        

        By
          letter
          dated December 5, 2006 the Company notified the holder of Series C Preferred
          Stock of its intent to redeem all of the outstanding shares of Series C
          Preferred Stock on or before December 15, 2006 at a per share basis of
          $0.7258334. All of holders Series C Preferred Stock of the Company had
agreed to
          accept payment of $0.7258334 per share in redemption provided such payment
          is
          received on or before 4:00 PM EST on December 20, 2006, notwithstanding
          the
          provisions of Section 6(a) of the Certificate of Designation of the Series
          C
          Preferred Stock which increases the liquidation preference of the Series
          C
          Preferred Stock after December 15, 2006. By written consent the holders
          agreed
          to extend this deadline through 4:00 PM EST on December 22, 2006. The Company
          did not redeem the Series C Preferred Stock on or before such deadline.
          Subsequently, the Company entered into a Redemption and Conversion Agreement
          with the holders of the outstanding shares of Series C preferred stock
          pursuant
          to which, immediately following the Closing, the Company will utilize
          $3,349,997.68 of the net proceeds of the sale of the Debentures and Warrants
          to
          redeem, on a pro-rata basis, that number of whole shares of Series C Preferred
          Stock as may be redeemed with such funds at a redemption price of $1.1375
          per
          share plus accrued dividends through the date of payment (the “Partial
          Redemption”). Concurrently with the Partial Redemption, the Company will effect
          the conversion of each share of Series C preferred stock that is not redeemed
          into one share of Common Stock. The persons to whom at least 90% of the
          shares
          of Common Stock will be issued have agreed to a 24 month lockup as described
          in
          Section 2.2(a)(vii) of the Purchase Agreement.

        

        
          
            
            

          

          
            9

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(j)

        Litigation

        

        On
          September 12, 2005, the Company filed a lawsuit against Toyota Motor
          Corporation, Toyota Motor Sales U.S.A., Inc. and Toyota Motor Manufacturing
          North America in the United States District Court for the Middle District
          of
          Florida, Tampa Division, Tampa, Florida for infringement of our Electric
          Wheel
          patent. In the lawsuit, the Company alleges that the hybrid transmission
          drive
          in the Toyota Prius and Highlander infringes a number of claims contained
          in its
          U.S. Patent No. 5,067,932 and it is asking for an injunction barring further
          infringement as well as damages for the unauthorized use of the patent
          by Toyota
          and its affiliates. 

        

        On
          January 10, 2006, the Company filed a complaint with the United States
          International Trade Commission in Washington D.C. seeking an exclusion
          order
          prohibiting the importation of infringing technology. On or about February
          8,
          2006, the ITC instituted an investigation based on the complaint. On September
          19, 2006, the Company expanded this claim to include the Toyota Camry and
          Lexus
          hybrid models. The ITC held a hearing on the complaint from October 30
          through
          November 3, 2006 and the ITC Administrative Law Judge is expected to issue
          his
          initial determination on or before February 13, 2007.

        

        The
          patent infringement action brought in the United States District Court
          for the
          Middle District of Florida, Tampa Division, is stayed until the ITC case
          is
          completed.

        
           

          
            
            

          

          
            10

            
              

            

          

          
            
            

          

        

        Schedule
          3.l(l)

        Compliance

        

        At
          September 30, 2006, the Company has accrued interest and penalties of $185,000
          related to unpaid payroll and payroll related taxes of approximately $79,000.
          On
          July 28, 2006, the Company paid $62,758 for unpaid payroll taxes, which
          is
          expected to resolve the trust portion of the IRS liability. The penalty
          and
          interest portion of this obligation remains outstanding and continues to
          subject
          the Company to delinquency proceedings from the U.S. Internal Revenue Service.
          The Company has negotiated an arrangement with the IRS whereby it would
          pay
          $10,000 per month beginning in January 2007, which is subject to the IRS
          approval process, but the terms cannot be guaranteed.

        

        By
          letter
          dated December 5, 2006 to Integrated Power Systems LLC (“IPS”), acting as the
          Sellers’ Representative (as defined in the Securities Purchase Agreement dated
          August 17, 2006), and pursuant to Section 6(a) of the Certificate of Designation
          of Series and Determination of Rights and Preferences of Series C Preferred
          Stock of the Company (the “Certificate of Designation”), the Company notified
          IPS of its intent to redeem all of the 4,615,381 outstanding shares of
          Series C
          Preferred Stock on or before December 15, 2006 at a per share price of
          $0.7258334. This deadline was subsequently extended to December 20, 2006
          and
          further extended to December 22, 2006. The Company did not redeem the Series
          C
          Preferred Stock on or before such deadline. Subsequently, the Company entered
          into a Redemption and Conversion Agreement with the holders of the outstanding
          shares of Series C preferred stock pursuant to which, immediately following
          the
          Closing, the Company will utilize $3,349,997.68 of the net proceeds of
          the sale
          of the Debentures and Warrants to redeem, on a pro-rata basis, that number
          of
          whole shares of Series C Preferred Stock as may be redeemed with such funds
          at a
          redemption price of $1.1375 per share plus accrued dividends through the
          date of
          payment (the “Partial Redemption”). Concurrently with the Partial Redemption,
          the Company will effect the conversion of each share of Series C preferred
          stock
          that is not redeemed into one share of Common Stock. The persons to whom
          at
          least 90% of the shares of Common Stock will be issued have agreed to a
          24 month
          lockup as described in Section 2.2(a)(vii) of the Purchase Agreement.

        

        On
          July
          28, 2006 the Company borrowed $125,000 from Jezebel Management Corporation
          and
          issued a promissory note in the principal amount of $125,000 to Jezebel.
          The new
          note bears interest at a rate of 15% per annum and matured on August 28,
          2006.
          The note is currently in default and carries a default interest rate of
          18% per
          annum.

        

        
          
            
            

          

          
            11

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(n)

        Title
          to Assets

        

        The
          Company has issued senior secured promissory notes in the aggregate principal
          amount of $1,712,085 and is authorized to issue up to $2,000,000 in principal
          amount of such notes. The holders of these notes have a first priority
          security
          interest in all of the tangible and intangible assets of the
          Company.

        

        Technipower
          LLC has a $1,500,000 revolving credit facility with Citizens Bank of
          Massachusetts dated May 4, 2006.  As of the date hereof, $700,000 is
          outstanding under the facility. In connection with the facility, Citizens
          Bank
          has a continuing interest in all tangible and intangible personal property
          of
          Technipower LLC.

        

        
          
            
            

          

          
            12

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(o)

        Patents
          and Trademarks

        

        On
          September 12, 2005, the Company filed a lawsuit against Toyota Motor
          Corporation, Toyota Motor Sales U.S.A., Inc. and Toyota Motor Manufacturing
          North America in the United States District Court for the Middle District
          of
          Florida, Tampa Division, Tampa, Florida for infringement of our Electric
          Wheel
          patent. In the lawsuit, the Company alleges that the hybrid transmission
          drive
          in the Toyota Prius and Highlander infringes a number of claims contained
          in its
          U.S. Patent No. 5,067,932 and it is asking for an injunction barring further
          infringement as well as damages for the unauthorized use of the patent
          by Toyota
          and its affiliates. 

        

        On
          January 10, 2006, the Company filed a complaint with the ITC in Washington
          D.C.
          seeking an exclusion order prohibiting the importation of infringing technology.
          On or about February 8, 2006, the ITC instituted an investigation based
          on the
          complaint. On September 19, 2006, the Company expanded this claim to include
          the
          Toyota Camry and Lexus hybrid models. The ITC held a hearing on the complaint
          from October 30 through November 3, 2006 and the ITC Administrative Law
          Judge is
          expected to issue his initial determination on or before February 13, 2007.
          

        

        The
          patent infringement action brought in the United States District Court
          for the
          Middle District of Florida, Tampa Division, is stayed until the ITC case
          is
          completed.

        

        The
          Company is currently investigating whether other car manufacturers, including
          Ford and Nissan, are using technology that infringes on the Company’s patents.

        
           

          
            
            

          

          
            13

            
              

            

          

          
            
            

          

        

        

        Schedule
          3.1(s)

        Certain
          Fees

        

        The
          Company has entered into a financial advisory agreement with Ardour dated
          September 28, 2006 (the “Ardour Agreement”). Under the Ardour Agreement, and in
          connection with this transaction, the Company must pay Ardour, a cash fee
          equal
          to 8% of the dollar amount raised and warrants to purchase Common Stock
          at an
          exercise price equal to the then current market valuation of the Company.
          The
          total amount of the warrants will be equal to 3% of the total shares issued
          in
          the offering. By an amendment to the Ardour Agreement, the Company and
          Ardour
          have agreed that upon a closing of this transaction Ardour will receive
          $50,000
          in cash and 290,000 shares of Common Stock in lieu of $334,000 of its cash
          fees,
          plus an additional cash fee equal to 8% of the amount by which gross proceeds
          of
          this transaction exceed $4,800,000.

        

        
          
            
            

          

          
            14

            
              

            

          

          
            
            

          

        

        

        Schedule
          3.1(v)

        Registration
          Rights

        

        On
          August
          17, 2006, the Company entered into a Securities Purchase Agreement with
          Integrated Power Systems LLC, Power Designs Inc., The Vantage Partners
          LLC,
          certain other persons and Technipower LLC and simultaneously closed on
          the
          acquisition of all of the outstanding membership units and warrants to
          purchase
          membership units of Technipower. In connection with this transaction, the
          Company entered into a Registration Rights Agreement with the sellers,
          dated as
          of August 17, 2006, pursuant to which the Company agreed to file, on or
          before
          November 1, 2006, a registration statement covering the shares of Common
          Stock
          issued to the sellers in connection with the closing and the shares of
          Common
          Stock underlying the Series C Preferred Stock issued to the sellers in
          connection with the closing. 

        

        On
          November 17, 2006, the Company and Davis & Gilbert LLP, the Company’s
          outside legal counsel agreed to convert $526,149.69 of accrued billed and
          unbilled fees and disbursements through September 1, 2006 into (i) a promissory
          note of the Company in the principal amount of $526,149.69, bearing interest
          at
          the rate of 12% per annum and (ii) a five-year warrant to purchase 200,000
          shares of Common Stock. The note matures on the earlier of (i) the Company’s
          receipt of proceeds from litigation, (ii) the receipt by the Company of
          gross
          proceeds of at least $5,000,000 in an equity financing, or (iii) March
          31, 2007.
          The Company is required to make prepayments of 25% of the principal amount
          of
          the note, plus accrued interest thereon, for each $1,250,000 it raises
          in its
          next equity financing. The Company has agreed to include the warrant shares
          in
          its next registration statement. These shares will be included in the
          registration statement that is currently pending before the Commission’s
          staff.

        

        The
          Company has agreed to register the 290,000 shares of Common Stock to be
          issued
          to Ardour Capital Investments, LLC pursuant to the amendment of the Ardour
          Agreement. The Company has agreed to register the 46,296 shares to be issued
          to
          D&G as a retainer for future work. See Schedules 3.1(g), 3.1(s) and
          4.9.

        

        The
          Company has agreed to issue Neal Brown 10,000 shares of Common Stock in
          settlement of legal fees owed. The Company has agreed to register these
          shares
          on the registration statement currently pending before the Commission’s
          staff.

        

        In
          connection with the settlement of various litigations and vendor arrangements,
          the following people have registration rights with respect to the following
          number of shares. Some of these shares may have been sold pursuant to the
          Company’s registration statement on Form SB-2 that was declared effective on May
          22, 2006. All of these shares are or will be, to the extent not already
          sold,
          included on the registration statement that is currently pending before
          the
          Commission’s staff.

        

        
          
            
            

          

          
            15

            
              

            

          

          
            
            

          

           

        

        
          	
                  Name
                    of Stockholder

                	 	
                  Number
                    of Shares of Common Stock Held

                
	
                  Jezebel
                    Management Corporation

                	 	
                  976,633
                    shares

                
	
                  Pinetree
                    (Barbados) Inc.

                	 	
                  790,526
                    shares

                
	
                  Coady
                    Family LLC

                	 	
                  572,198
                    shares

                
	
                  Woodlaken
                    LLC

                	 	
                  370,121
                    shares

                
	
                  Michael
                    D’Amelio

                	 	
                  300,000
                    shares

                
	
                  Mark
                    J. Hardcastle and Paula A. Hardcastle

                	 	
                  300,000
                    shares

                
	
                  Anita
                    Ann Poyas

                	 	
                  256,934
                    shares

                
	
                  Charles
                    Shannon

                	 	
                  230,000
                    shares

                
	
                  David
                    Parcells

                	 	
                  220,000
                    shares

                
	
                  Duane
                    Crisco

                	 	
                  200,000
                    shares

                
	
                  John
                    S. Brock Limited

                	 	
                  163,488
                    shares

                
	
                  Gary
                    Laskowski

                	 	
                  150,000
                    shares

                
	
                  Donald
                    H. Poyas

                	 	
                  195,750
                    shares

                
	
                  Medusa
                    Management LLC

                	 	
                  175,439
                    shares

                
	
                  Michael
                    Poyas

                	 	
                  122,316
                    shares

                
	
                  Peter
                    and Barbara Carpenter

                	 	
                  60,000
                    shares

                
	
                  Pascal
                    Partners LLC

                	 	
                  60,000
                    shares

                
	
                  Millennium
                    Trust Co. LLC Custodian FBO Joseph Cooper Rollover IRA
                    90M020013

                	 	
                  50,000
                    shares

                
	
                  Sam
                    Occhipinti

                	 	
                  50,000
                    shares

                
	
                  Peter
                    DeVecchis Jr.

                	 	
                  40,000
                    shares

                
	
                  F.
                    Jay Leonard

                	 	
                  12,500
                    shares

                
	
                  Steven
                    Kilponen

                	 	
                  12,500
                    shares

                
	
                  Jonathan
                    Edwards

                	 	
                  10,000
                    shares

                
	
                  Floyd
                    Johnson

                	 	
                  10,000
                    shares

                
	
                  Investor
                    Awareness

                	 	
                  10,000
                    shares

                

        

        

        
          
            
            

          

          
            16

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(y)

        Disclosure

        

        Some
          of
          the investors have entered into nondisclosure agreements with the Company
          and
          have received information from the Company that may be material and non-public.
          

         

        
          
            
            

          

          
            17

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(aa)

        Solvency

        

        The
          Company has issued senior secured promissory notes in the aggregate principal
          amount of $1,712,085 and is authorized to issue up to $2,000,000 in principal
          amount of such notes. The notes are due September 30, 2007. The following
          is a
          list of the noteholders:

        

        
          	
                  Name
                    of Investor

                	 	
                  Date
                    Issued

                	 	
                  Principal
                    Amount

                	 
	
                  Woodlaken
                    LLC

                	 	 	
                  March
                    7, 2005

                	 	
                  $

                	
                  40,000.00
                    

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  March
                    16, 2005

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Pinetree
                    (Barbados) Inc.

                	 	 	
                  April
                    1, 2005

                	 	
                  $

                	
                  50,000.00

                	 
	
                  Woodlaken
                    LLC

                	 	 	
                  April
                    1, 2005

                	 	
                  $

                	
                  10,000.00
                    

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  April
                    18, 2005

                	 	
                  $

                	
                  75,000.00

                	 
	
                  Coady
                    Family LLC

                	 	 	
                  May
                    25, 2005

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  July
                    8, 2005

                	 	
                  $

                	
                  75,000.00

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  August
                    16, 2005

                	 	
                  $

                	
                  150,000.00

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  September
                    15, 2005

                	 	
                  $

                	
                  150,000.00

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  November
                    18, 2005

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Pinetree
                    (Barbados) Inc.

                	 	 	
                  November
                    18, 2005

                	 	
                  $

                	
                  100,000.00

                	 
	
                  F.
                    Jay Leonard

                	 	 	
                  March
                    20, 2006

                	 	
                  $

                	
                  25,000.00

                	 
	
                  Woodlaken
                    LLC

                	 	 	
                  March
                    31, 2006

                	 	
                  $

                	
                  72,000.00

                	 
	
                  Peter
                    and Barbara Carpenter

                	 	 	
                  April
                    7, 2006

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Pascal
                    Partners, LLC

                	 	 	
                  April
                    10, 2006

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Coady
                    Family LLC

                	 	 	
                  May
                    23, 2006

                	 	
                  $

                	
                  200,000.00

                	 
	
                  Steven
                    Kilponen

                	 	 	
                  June
                    13, 2006

                	 	
                  $

                	
                  25,000.00

                	 
	
                  Millennium
                    Trust Co. LLC Custodian FBO Joseph Cooper Rollover IRA
                    90M020013

                	 	 	
                  July
                    3, 2006

                	 	
                  $

                	
                  100,000.00

                	 
	
                  F.
                    Jay Leonard

                	 	 	
                  October
                    13, 2006

                	 	
                  $

                	
                  25,000.00

                	 
	
                  Millennium
                    Trust Co. LLC Custodian FBO Joseph Cooper Rollover IRA
                    90M020013

                	 	 	
                  October
                    13, 2006

                	 	
                  $

                	
                  85,000.00

                	 
	
                  Steven
                    Kilponen

                	 	 	
                  October
                    31, 2006

                	 	
                  $

                	
                  30,085.00

                	 
	
                  Total

                	 	 	 	 	
                  $

                	
                  1,712,085.00

                	 

        

        

        On
          November 18, 2005, the Company entered into an agreement with Oliver Street
          Finance LLC pursuant to which Oliver Street provides funding to the Company
          to
          prosecute the Company’s patent infringement action against Toyota Motor
          Corporation, Toyota Motor Sales U.S.A., Inc. and Toyota Motor Manufacturing
          North America. Under the terms of the agreement, Oliver Street pays all
          legal
          fees and out-of pocket expenses billed by the Company’s special patent counsel,
          Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., in connection with
          the
          litigation against Toyota and approved by the Company in exchange for a
          portion
          of any recovery that the Company receives in the Litigation equal to the
          greater
          of 40% of the recovery or the actual amount of legal fees and expenses
          Oliver
          Street pays on the Company’s behalf. 

        

        On
          July
          28, 2006 the Company borrowed $125,000 from Jezebel Management Corporation
          and
          issued a promissory note in the principal amount of $125,000 to Jezebel.
          The new
          note bears interest at a rate of 15% per annum and matured on August 28,
          2006.
          The note is currently in default and carries a default interest rate of
          18% per
          annum.

        

        
          
            
            

          

          
            18

            
              

            

          

          
            
            

          

           

          On
            November 17, 2006, the Company and D&G agreed to convert $526,149.69 of
            accrued billed and unbilled fees and disbursements through September
            1, 2006
            into (i) a promissory note of the Company in the principal amount of
            $526,149.69, bearing interest at the rate of 12% per annum and (ii) a
            five-year
            warrant to purchase 200,000 shares of Common Stock. The note matures
            on the
            earlier of (i) the Company’s receipt of proceeds from litigation, (ii) the
            receipt by the Company of gross proceeds of at least $5,000,000 in an
            equity
            financing, or (iii) March 31, 2007. The Company is required to make prepayments
            of 25% of the principal amount of the note, plus accrued interest thereon,
            for
            each $1,250,000 it raises in its next equity financing. The Company and
            D&G
            have agreed that upon the closing of this transaction for gross proceeds
            of less
            than $5,500,000, the Company will pay down the note by an amount equal
            to
            $400,000 plus a portion of any cash proceeds by which the gross proceeds
            of this
            financing exceed $4,800,000, and that the Company will thereupon issue
            a new
            note to D&G for the unpaid balance of the amounts owed under the note plus
            $163,375.51, representing amounts owed to D&G for services rendered through
            January 11, 2007, less any additional cash paid over $400,000 at the
            closing.

           

          Technipower
            LLC has a $1,500,000 revolving credit facility with Citizens Bank of
            Massachusetts dated May 4, 2006.  As of the date hereof, $700,000 is
            outstanding under the facility.

        

        

        
          
            
            

          

          
            19

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(bb)

        Tax
          Status

        

        At
          September 30, 2006, the Company has accrued interest and penalties of $185,000
          related to unpaid payroll and payroll related taxes of approximately $79,000.
          On
          July 28, 2006, the Company paid $62,758 for unpaid payroll taxes, which
          is
          expected to resolve the trust portion of the IRS liability. The penalty
          and
          interest portion of this obligation remains outstanding and continues to
          subject
          the Company to delinquency proceedings from the U.S. Internal Revenue Service.
          The Company has negotiated an arrangement with the IRS whereby it would
          pay
          $10,000 per month beginning in January 2007, which is subject to the IRS
          approval process, but the terms cannot be guaranteed.

        
           

          
            
            

          

          
            20

            
              

            

          

          
            
            

          

        

        

        Schedule
          3.1(ee)

        Accountants

        

        UHY
          LLP

        One
          Financial Plaza

        Hartford,
          CT 06103

        

        
          
            
            

          

          
            21

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(ff)

        Seniority

        

        The
          Company has issued senior secured promissory notes in the aggregate principal
          amount of $1,712,085 and is authorized to issue up to $2,000,000 in principal
          amount of such notes. The notes are due September 30, 2007. The following
          is a
          list of the noteholders:

        

        
          	
                  Name
                    of Investor

                	 	
                  Date
                    Issued

                	 	
                  Principal
                    Amount

                	 
	
                  Woodlaken
                    LLC

                	 	 	
                  March
                    7, 2005

                	 	
                  $

                	
                  40,000.00
                    

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  March
                    16, 2005

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Pinetree
                    (Barbados) Inc.

                	 	 	
                  April
                    1, 2005

                	 	
                  $

                	
                  50,000.00

                	 
	
                  Woodlaken
                    LLC

                	 	 	
                  April
                    1, 2005

                	 	
                  $

                	
                  10,000.00
                    

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  April
                    18, 2005

                	 	
                  $

                	
                  75,000.00

                	 
	
                  Coady
                    Family LLC

                	 	 	
                  May
                    25, 2005

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  July
                    8, 2005

                	 	
                  $

                	
                  75,000.00

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  August
                    16, 2005

                	 	
                  $

                	
                  150,000.00

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  September
                    15, 2005

                	 	
                  $

                	
                  150,000.00

                	 
	
                  Jezebel
                    Management Corporation

                	 	 	
                  November
                    18, 2005

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Pinetree
                    (Barbados) Inc.

                	 	 	
                  November
                    18, 2005

                	 	
                  $

                	
                  100,000.00

                	 
	
                  F.
                    Jay Leonard

                	 	 	
                  March
                    20, 2006

                	 	
                  $

                	
                  25,000.00

                	 
	
                  Woodlaken
                    LLC

                	 	 	
                  March
                    31, 2006

                	 	
                  $

                	
                  72,000.00

                	 
	
                  Peter
                    and Barbara Carpenter

                	 	 	
                  April
                    7, 2006

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Pascal
                    Partners, LLC

                	 	 	
                  April
                    10, 2006

                	 	
                  $

                	
                  100,000.00

                	 
	
                  Coady
                    Family LLC

                	 	 	
                  May
                    23, 2006

                	 	
                  $

                	
                  200,000.00

                	 
	
                  Steven
                    Kilponen

                	 	 	
                  June
                    13, 2006

                	 	
                  $

                	
                  25,000.00

                	 
	
                  Millennium
                    Trust Co. LLC Custodian FBO Joseph Cooper Rollover IRA
                    90M020013

                	 	 	
                  July
                    3, 2006

                	 	
                  $

                	
                  100,000.00

                	 
	
                  F.
                    Jay Leonard

                	 	 	
                  October
                    13, 2006

                	 	
                  $

                	
                  25,000.00

                	 
	
                  Millennium
                    Trust Co. LLC Custodian FBO Joseph Cooper Rollover IRA
                    90M020013

                	 	 	
                  October
                    13, 2006

                	 	
                  $

                	
                  85,000.00

                	 
	
                  Steven
                    Kilponen

                	 	 	
                  October
                    31, 2006

                	 	
                  $

                	
                  30,085.00

                	 
	
                  Total

                	 	 	 	 	
                  $

                	
                  1,712,085.00

                	 

        

        

        On
          November 18, 2005, the Company entered into an agreement with Oliver Street
          Finance LLC pursuant to which Oliver Street provides funding to the Company
          to
          prosecute the Company’s patent infringement action against Toyota Motor
          Corporation, Toyota Motor Sales U.S.A., Inc. and Toyota Motor Manufacturing
          North America. Under the terms of the agreement, Oliver Street pays all
          legal
          fees and out-of pocket expenses billed by the Company’s special patent counsel,
          Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., in connection with
          the
          litigation against Toyota and approved by the Company in exchange for a
          portion
          of any recovery that the Company receives in the Litigation equal to the
          greater
          of 40% of the recovery or the actual amount of legal fees and expenses
          Oliver
          Street pays on the Company’s behalf. 

        

        
          
            
            

          

          
            22

            
              

            

          

          
            
            

          

        

        Schedule
          3.1(gg)

        No
          Disagreements with Accountants and Lawyers

        

        No
          exceptions

        

        
          
            
            

          

          
            23

            
              

            

          

          
            
            

          

        

        Schedule
          4.9

        Use
          of Proceeds

         

        

          
            	
                    Preferred
                      redemption

                  	 	
                    $

                  	
                    3,349,997.68

                  	 
	
                    Ardour
                      fees

                  	 	
                    $

                  	
                    50,000.00*

                  	 
	
                    Davis
                      & Gilbert LLP

                  	 	
                    $

                  	
                    400,000.00**

                  	 
	
                    Other
                      payables

                  	 	
                    $

                  	
                    200,000.00

                  	 
	
                    Working
                      Capital reserve

                  	 	
                    $

                  	
                    800,002.32

                  	 
	
                    TOTAL

                  	 	 	
                    4,800,000.00

                  	 

          

          

          
            
              

            

          

          
            	
                    *

                  	
                    Assumes
                      gross proceeds of this transaction are $4,800,000. The Company
                      and Ardour
                      have agreed that upon a closing of this transaction Ardour
                      will receive
                      $50,000 in cash and 290,000 shares of Common Stock, plus an
                      additional
                      cash fee equal to 8% of the amount by which the gross proceeds
                      of this
                      transaction exceed $4,800,000.

                  

          

          

          
            	
                    **

                  	
                    Assumes
                      gross proceeds of this transaction are $4,800,000. The Company
                      and D&G
                      have agreed that upon the closing of this transaction for gross
                      proceeds
                      of less than $5,500,000, the Company will pay down the note
                      by an amount
                      equal to $400,000 plus a portion of any cash proceeds by which
                      the gross
                      proceeds of this financing exceed $4,800,000, and that the
                      Company will
                      thereupon issue a new note to D&G for the unpaid balance of the
                      amounts owed under the note plus $163,375.51, representing
                      amounts owed to
                      D&G for services rendered through January 11, 2007, less any
                      additional cash paid over $400,000 at the
                      closing.

                  

          

        

         

         

        
          
            
            

          

          
            24EX 10.2

    EXHIBIT
      10.2

     

    NEITHER
      THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
      MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
      OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
      SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
      AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
      IN
      CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
      SECURITIES.

    

    Original
      Issue Date: January
      __, 2007

    Original
      Conversion Price (subject to adjustment herein): $2.00

    

    $_______________

    

    VARIABLE
      RATE SELF-LIQUIDATING 

    SENIOR
      SECURED CONVERTIBLE DEBENTURE

    DUE
      MARCH __, 2008

    

    THIS
      VARIABLE RATE SELF-LIQUIDATING SENIOR SECURED CONVERTIBLE DEBENTURE is one
      of a
      series of duly authorized and validly issued Variable Rate Self-Liquidating
      Senior Secured Convertible Debentures of Solomon Technologies, Inc., a Delaware
      corporation (the “Company”),
      having its principal place of business at 1400 L&R Industrial Blvd., Tarpon
      Springs, Florida 34689, designated as its Variable Rate Self-Liquidating Senior
      Secured Convertible Debenture due March __, 2008 (this debenture, the
“Debenture”
and,
      collectively with the other such series of debentures, the “Debentures”).

    

    FOR
      VALUE
      RECEIVED, the Company promises to pay to ________ or its registered assigns
      (the
“Holder”),
      or
      shall have paid pursuant to the terms hereunder, the principal sum of $_____
      on
      March __, 2008 (the “Maturity
      Date”)
      or
      such earlier date as this Debenture is required or permitted to be repaid as
      provided hereunder, and to pay interest to the Holder on the aggregate
      unconverted and then outstanding principal amount of this Debenture in
      accordance with the provisions hereof. This Debenture is subject to the
      following additional provisions:

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

       

    

    Section
      1. Definitions.
      For the
      purposes hereof, in addition to the terms defined elsewhere in this Debenture,
      (a) capitalized terms not otherwise defined herein shall have the meanings
      set
      forth in the Purchase Agreement and (b) the following terms shall have the
      following meanings:

    

    “Alternate
      Consideration”
shall
      have the meaning set forth in Section 5(e).

    

    “Bankruptcy
      Event”
means
      any of the following events: (a) the Company or any significant Subsidiary
      (as
      such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
      case
      or other proceeding under any bankruptcy, reorganization, arrangement,
      adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
      or
      similar law of any jurisdiction relating to the Company or any significant
      Subsidiary thereof; (b) there is commenced against the Company or any
      significant Subsidiary thereof any such case or proceeding that is not dismissed
      within 60 days after commencement; (c) the Company or any significant Subsidiary
      thereof is adjudicated insolvent or bankrupt or any order of relief or other
      order approving any such case or proceeding is entered; (d) the Company or
      any
      significant Subsidiary thereof suffers any appointment of any custodian or
      the
      like for it or any substantial part of its property that is not discharged
      or
      stayed within 60 calendar days after such appointment; (e) the Company or any
      significant Subsidiary thereof makes a general assignment for the benefit of
      creditors; (f) the Company or any significant Subsidiary thereof calls a meeting
      of its creditors with a view to arranging a composition, adjustment or
      restructuring of its debts; or (g) the Company or any significant Subsidiary
      thereof, by any act or failure to act, expressly indicates its consent to,
      approval of or acquiescence in any of the foregoing or takes any corporate
      or
      other action for the purpose of effecting any of the foregoing.

    

    “Base
      Conversion Price”
shall
      have the meaning set forth in Section 5(b).

    

    “Business
      Day”
means
      any day except Saturday, Sunday, any day which shall be a federal legal holiday
      in the United States or any day on which banking institutions in the State
      of
      New York are authorized or required by law or other governmental action to
      close.

    

    “Buy-In”
shall
      have the meaning set forth in Section 4(d)(v).

    

    “Change
      of Control Transaction”
means
      the occurrence after the date hereof of any of (i) an acquisition after the
      date
      hereof by an individual or legal entity or “group” (as described in Rule
      13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
      through legal or beneficial ownership of capital stock of the Company, by
      contract or otherwise) of in excess of 33% of the voting securities of the
      Company (other than by means of conversion or exercise of the Debentures and
      the
      Securities issued together with the Debentures), or (ii) the Company merges
      into
      or consolidates with any other Person, or any Person merges into or consolidates
      with the Company and, after giving effect to such transaction, the stockholders
      of the Company immediately prior to such transaction own less than 66% of the
      aggregate voting power of the Company or the successor entity of such
      transaction, or (iii) the Company sells or transfers all or substantially all
      of
      its assets to another Person and the stockholders of the Company immediately
      prior to such transaction own less than 66% of the aggregate voting power of
      the
      acquiring entity immediately after the transaction, or (iv) a replacement at
      one
      time or within a three year period of more than one-half of the members of
      the
      Company’s board of directors which is not approved by a majority of those
      individuals who are members of the board of directors on the date hereof (or
      by
      those individuals who are serving as members of the board of directors on any
      date whose nomination to the board of directors was approved by a majority
      of
      the members of the board of directors who are members on the date hereof),
      or
      (v) the execution by the Company of an agreement to which the Company is a
      party
      or by which it is bound, providing for any of the events set forth in clauses
      (i) through (iv) above.

    
      
        
        

      

      
        2

        
          

        

      

       

    

    

    “Closing
      Price”
means,
      on any particular date, (a) the last reported closing bid price per share of
      Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
      at 4:15 p.m. (New York City time)), or (b) if there is no such price on such
      date, the closing bid price on the Trading Market on the date nearest preceding
      such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)),
      or
      (c) if the Common Stock is not then listed or quoted for the Trading Market
      and
      if prices for the Common Stock are then reported in the “pink sheets” published
      by Pink Sheets LLC (or a similar organization or agency succeeding to its
      functions of reporting prices), the most recent bid price per share of the
      Common Stock so reported, or (d) if the shares of Common Stock are not publicly
      traded, the fair market value of a share of Common Stock as determined by an
      appraiser selected in good faith by the Purchasers holding at least 50.1% in
      principal amount of the outstanding Debentures.

    

    “Common
      Stock”
means
      the common stock, par value $0.001 per share, of the Company and stock of any
      other class of securities into which such securities may hereafter be
      reclassified or changed into.

    

    “Conversion
      Date”
shall
      have the meaning set forth in Section 4(a).

    

    “Conversion
      Price”
shall
      have the meaning set forth in Section 4(b).

    

    “Conversion
      Shares”
means,
      collectively, the shares of Common Stock issuable upon conversion of this
      Debenture in accordance with the terms hereof.

    

    “Debenture
      Register”
shall
      have the meaning set forth in Section 2(c).

    

    “Dilutive
      Issuance”
shall
      have the meaning set forth in Section 5(b).

    

    “Dilutive
      Issuance Notice”
shall
      have the meaning set forth in Section 5(b).

    

    “Effectiveness
      Period”
shall
      have the meaning set forth in the Registration Rights Agreement.

    
      
        
        

      

      
        3

        
          

        

      

       

    

    

    “Equity
      Conditions”
means,
      during the period in question, (i)
      the
      Company shall have duly honored all conversions and redemptions scheduled to
      occur or occurring by virtue of one or more Notices of Conversion of the Holder,
      if any, (ii) the Company shall have paid all liquidated damages and other
      amounts owing to the Holder in respect of this Debenture, (iii)
      there is an effective Registration Statement pursuant to which the Holder is
      permitted to utilize the prospectus thereunder to resell all of the shares
      issuable pursuant to the Transaction Documents (and the Company believes, in
      good faith, that such effectiveness will continue uninterrupted for the
      foreseeable future), (iv) the Common Stock is trading on a Trading Market and
      all of the shares of Common Stock issuable pursuant to the Transaction Documents
      are listed or quoted for trading on such Trading Market (and the Company
      believes, in good faith, that trading of the Common Stock on a Trading Market
      will continue uninterrupted for the foreseeable future), (v) there is a
      sufficient number of authorized but unissued and otherwise unreserved shares
      of
      Common Stock for the issuance of all of the shares issuable pursuant to the
      Transaction Documents, (vi) there is no existing Event of Default or no existing
      event which, with the passage of time or the giving of notice, would constitute
      an Event of Default, (vii) the issuance of the shares in question (or, in the
      case of a Monthly Redemption, the shares issuable upon conversion in full of
      the
      Monthly Redemption Amount) to
      the
      Holder would not violate the limitations set forth in Section 4(c) herein,
      (viii)
      there has been no public announcement of a pending or proposed Fundamental
      Transaction or Change of Control Transaction that has not been consummated,
      (ix)
      the Holder is not in possession of any information provided by the Company
      that
      constitutes, or may constitute, material non-public information and (x) the
      aggregate trading volume for the Common Stock on the principal Trading Market
      exceeds $900,000 during the 12 consecutive Trading Days (except that, with
      respect to any 5 Trading Day Interest Payment Period, the such aggregate trading
      volume shall exceed $375,000) prior to the applicable date in
      question.

    

    “Event
      of Default”
shall
      have the meaning set forth in Section 8.

    

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

    

    “Fundamental
      Transaction”
shall
      have the meaning set forth in Section 5(e).

     

    “Interest
      Conversion Rate”
means
      95% of the lesser of (a) the average of the VWAPs for the 5 consecutive Trading
      Days ending on the Trading Day that is immediately prior to the applicable
      Interest Payment Date or (b) the average of the VWAPs for the 5 consecutive
      Trading Days ending on the Trading Day that is immediately prior to the date
      the
      applicable Interest Conversion Shares are issued and delivered if after the
      Interest Payment Date.

    

    “Interest
      Conversion Shares”
shall
      have the meaning set forth in Section 2(a).

    

    “Interest
      Notice Period”
shall
      have the meaning set forth in Section 2(a).

    
      
        
        

      

      
        4

        
          

        

      

       

    

    

    “Interest
      Payment Date”
shall
      have the meaning set forth in Section 2(a).

    

    “Interest
      Period”
means,
      initially, the period beginning on and including the Original Issue Date and
      ending on and including March 31, 2007 and each successive period as follows:
      the
      period beginning on and including April 1 and ending on and including June
      30;
      the period beginning on and including July 1 and ending on and including
      September 30; the period beginning on and including October 1 and ending on
      and
      including December 31; and
      the
      period beginning on and including January 1 and ending on and including March
      31.

    

    “Interest
      Share Amount”
shall
      have the meaning set forth in Section 2(a).

    

    “Late
      Fees”
shall
      have the meaning set forth in Section 2(d).

    

    “LIBOR”
means,
      for each Interest Period (i) the six-month London Interbank Offered Rate for
      deposits in U.S. dollars, as shown on the Trading Day immediately prior to
      the
      beginning of such Interest Period in The Wall Street Journal (Eastern Edition)
      under the caption "Money Rates - London Interbank Offered Rates (LIBOR)"; or
      (ii) if The Wall Street Journal does not publish such rate, the offered
      one-month rate for deposits in U.S. dollars which appears on the Reuters Screen
      LIBO Page as of 10:00 a.m., New York time, on the Trading Day immediately prior
      to the beginning of such Interest Period, provided that if at least two rates
      appear on the Reuters Screen LIBO Page on any such Trading Day, the "LIBOR"
      for
      such day shall be the arithmetic mean of such rates.

    

    “Mandatory
      Default Amount”
means
      the sum of (i) the greater of (A) 130% of the outstanding principal amount
      of
      this Debenture, plus all accrued and unpaid interest hereon, or (B) the
      outstanding principal amount of this Debenture, plus all accrued and unpaid
      interest hereon, divided by the Conversion Price on the date the Mandatory
      Default Amount is either (a) demanded (if demand or notice is required to create
      an Event of Default) or otherwise due or (b) paid in full, whichever has a
      lower
      Conversion Price, multiplied by the VWAP on the date the Mandatory Default
      Amount is either (x) demanded or otherwise due or (y) paid in full, whichever
      has a higher VWAP, and (ii) all other amounts, costs, expenses and liquidated
      damages due in respect of this Debenture. Notwithstanding anything herein to
      the
      contrary, if at the applicable time the Holder is able to and there are no
      impediments to convert and immediately resell the Conversion Shares to the
      public pursuant to a Registration Statement or Rule 144(k), the Mandatory
      Default Amount shall mean (y) the sum of 130% of the outstanding principal
      amount of this Debenture, plus all accrued and unpaid interest hereon, and
      (z)
      all other amounts, costs, expenses and liquidated damages due in respect of
      this
      Debenture.

     

    “Monthly
      Redemption”
means
      the redemption of this Debenture pursuant to Section 6(a) hereof.

    
      
        
        

      

      
        5

        
          

        

      

       

    

    

    “Monthly
      Redemption Amount”
means,
      as to a Monthly Redemption, $__,1 plus
      accrued but unpaid interest, liquidated damages and any other amounts then
      owing
      to such Holder in respect of this Debenture.

    

    “Monthly
      Redemption Date”
means
      the 1st of each month, commencing immediately upon the earlier of (a) the first
      such date immediately following the Effective Date and (b) May __, 2007, and
      terminating upon the full redemption of this Debenture.

    

    “Monthly
      Redemption Notice”
shall
      have the meaning set forth in Section 6(a) hereof.

    

    “Monthly
      Redemption Period”
shall
      have the meaning set forth in Section 6(a) hereof.

    

    “Monthly
      Redemption Price”
shall
      have the meaning set forth in Section 6(a) hereof. 

    

    “Monthly
      Redemption Share Amount”
shall
      have the meaning set forth in Section 6(a) hereof. 

    

    “Notice
      of Conversion”
shall
      have the meaning set forth in Section 4(a).

    

    “Optional
      Redemption”
shall
      have the meaning set forth in Section 6(b).

    

    “Optional
      Redemption Amount”
means
      the sum of (i) 120% of the principal amount of the Debenture then outstanding
      and subject to redemption, (ii) accrued but unpaid interest on the redeemed
      principal and (iii) all liquidated damages and other amounts due in respect
      of
      the principal amount being redeemed.

    

    “Optional
      Redemption Date”
shall
      have the meaning set forth in Section 6(b).

    

    “Optional
      Redemption Notice”
shall
      have the meaning set forth in Section 6(b).

    

    “Optional
      Redemption Notice Date”
shall
      have the meaning set forth in Section 6(b).

    

    “Original
      Issue Date”
means
      the date of the first issuance of the Debentures, regardless of any transfers
      of
      any Debenture and regardless of the number of instruments which may be issued
      to
      evidence such Debentures.

    

    “Permitted
      Indebtedness”
      means (a) the
      Indebtedness existing on the Original Issue Date and set forth on Schedule
      3.1(aa)
      attached
      to the Purchase Agreement, (b) lease obligations and purchase money indebtedness
      of up to $100,000, in the aggregate, incurred in connection with the acquisition
      of capital assets and lease obligations with respect to newly acquired or leased
      assets and (c) indebtedness that (i) is expressly subordinate to the Debentures
      pursuant to a written subordination agreement with the Purchasers that is
      acceptable to each Purchaser in its sole and absolute discretion and (ii)
      matures at a date later than the Maturity Date.

     

    
      
1 1/10
      of
      the principal amount on the Original Issue Date.

    
      
        
        

      

      
        6

        
          

        

      

       

    

    

    “Permitted
      Lien”
means
      the individual and collective reference to the following: (a) Liens for taxes,
      assessments and other governmental charges or levies not yet due or Liens for
      taxes, assessments and other governmental charges or levies being contested
      in
      good faith and by appropriate proceedings for which adequate reserves (in the
      good faith judgment of the management of the Company) have been established
      in
      accordance with GAAP; (b) Liens imposed by law which were incurred in the
      ordinary course of the Company’s business, such as carriers’, warehousemen’s and
      mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
      the ordinary course of the Company’s business, and which (x) do not individually
      or in the aggregate materially detract from the value of such property or assets
      or materially impair the use thereof in the operation of the business of the
      Company and its consolidated Subsidiaries or (y) are being contested in good
      faith by appropriate proceedings, which proceedings have the effect of
      preventing for the foreseeable future the forfeiture or sale of the property
      or
      asset subject to such Lien; (c) Liens incurred in connection with Permitted
      Indebtedness under clause (a) of the definition thereof; and (d) Liens incurred
      in connection with Permitted Indebtedness under clause (b) thereunder, provided
      that such Liens are not secured by assets of the Company or its Subsidiaries
      other than the assets so acquired or leased.

     

    “Person”
means
      an individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

    

    “Pre-Redemption
      Conversion Shares”
shall
      have the meaning set forth in Section 6(a) hereof. 

    

    “Purchase
      Agreement”
means
      the Securities Purchase Agreement, dated as of January 17, 2007, among the
      Company and the original Holders, as amended, modified or supplemented from
      time
      to time in accordance with its terms.

    

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated as of the date of the Purchase
      Agreement, among the Company and the original Holders, as amended, modified
      or
      supplemented from time to time in accordance with its terms.

    

    “Registration
      Statement”
means
      a
      registration statement that registers the resale of all Conversion Shares and
      Interest Conversion Shares of the Holder, names such Holder as a “selling
stockholder” therein, and meets the requirements of the Registration Rights
      Agreement.

    

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

    
      
        
        

      

      
        7

        
          

        

      

       

    

    

    “Share
      Delivery Date”
shall
      have the meaning set forth in Section 4(d).

    

    “Subsidiary”
shall
      have the meaning set forth in the Purchase Agreement.

    

    “Trading
      Day”
means
      a
      day on which the principal Trading Market is open for business.

    

    “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the American Stock Exchange, the Nasdaq
      Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
      the
      New York Stock Exchange or the OTC Bulletin Board.

    

    “Transaction
      Documents”
shall
      have the meaning set forth in the Purchase Agreement.

    

    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted for trading as reported by Bloomberg L.P. (based on a
      Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
      time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume
      weighted average price of the Common Stock for such date (or the nearest
      preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
      quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
      are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
      similar organization or agency succeeding to its functions of reporting prices),
      the most recent bid price per share of the Common Stock so reported; or
      (d) in all other cases, the fair market value of a share of Common Stock as
      determined by an independent appraiser selected in good faith by the Holder
      and
      reasonably acceptable to the Company.

    

    Section
      2. Interest.

     

    a)  Payment
      of Interest in Cash or Kind.
      The
      Company shall pay interest to the Holder on the aggregate unconverted and then
      outstanding principal amount of this Debenture at a rate of interest per annum
      equal to the higher of (a) 8.0% or (b) LIBOR during the applicable Interest
      Period plus 2%, payable quarterly on January 1, April 1, July 1 and October
      1,
      beginning on the first such date after the Original Issue Date, on each Monthly
      Redemption Date (as to that principal amount then being redeemed), on each
      Conversion Date (as to that principal amount then being converted) and on the
      Maturity Date (each such date, an “Interest
      Payment Date”)
      (if
      any Interest Payment Date is not a Business Day, then the applicable payment
      shall be due on the next succeeding Business Day), in cash or duly authorized,
      validly issued, fully paid and non-assessable shares of Common Stock at the
      Interest Conversion Rate (the amount in U.S. dollars to be paid in shares,
      the
“Interest
      Share Amount”)
      or a
      combination thereof; provided,
      however,
      that
      payment in shares of Common Stock may only occur if (i) all of the Equity
      Conditions have been met (unless waived by the Holder in writing) during the
      5
      Trading Days immediately prior to the applicable Interest Payment Date (the
      “Interest
      Notice Period”)
      and
      through and including the date such shares of Common Stock are issued to the
      Holder, (ii) the Company shall have given the Holder notice in accordance with
      the notice requirements set forth below and (iii) as to such Interest Payment
      Date, prior to such Interest Notice Period (but not more than 5 Trading Days
      prior to the commencement of such Interest Notice Period), the Company shall
      have delivered to the Holder’s account with The Depository Trust Company a
      number of shares of Common Stock to be applied against such Interest Share
      Amount equal to the quotient of (x) the applicable Interest Share Amount divided
      by (y) the then Conversion Price (the “Interest
      Conversion Shares”).

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    b)  Company’s
      Election to Pay Interest in Kind.
      Subject
      to the terms and conditions herein, the decision whether to pay interest
      hereunder in cash, shares of Common Stock or a combination thereof shall be
      at
      the discretion of the Company. Prior to the commencement of any Interest Notice
      Period, the Company shall deliver to the Holder a written notice of its election
      to pay interest hereunder on the applicable Interest Payment Date either in
      cash, shares of Common Stock or a combination thereof and the Interest Share
      Amount as to the applicable Interest Payment Date, provided that the Company
      may
      indicate in such notice that the election contained in such notice shall apply
      to future Interest Payment Dates until revised by a subsequent notice. During
      any Interest Notice Period, the Company’s election (whether specific to an
      Interest Payment Date or continuous) shall be irrevocable as to such Interest
      Payment Date. Subject to the aforementioned conditions, failure to timely
      deliver such written notice to the Holder shall be deemed an election by the
      Company to pay the interest on such Interest Payment Date in cash. At any time
      the Company delivers a notice to the Holder of its election to pay the interest
      in shares of Common Stock, the Company shall timely file a prospectus supplement
      pursuant to Rule 424 disclosing such election. The aggregate number of shares
      of
      Common Stock otherwise issuable to the Holder on an Interest Payment Date shall
      be reduced by the number of Interest Conversion Shares previously issued to
      the
      Holder in connection with such Interest Payment Date.

    

    c)  Interest
      Calculations.
      Interest shall be calculated on the basis of a 360-day year, consisting of
      twelve 30 calendar day periods, and shall accrue daily commencing on the
      Original Issue Date until payment in full of the principal sum, together with
      all accrued and unpaid interest, liquidated damages and other amounts which
      may
      become due hereunder, has been made. Payment of interest in shares of Common
      Stock (other than the Interest Conversion Shares issued prior to an Interest
      Notice Period) shall otherwise occur pursuant to Section 4(d)(ii) herein and,
      solely for purposes of the payment of interest in shares, the Interest Payment
      Date shall be deemed the Conversion Date. Interest shall cease to accrue with
      respect to any principal amount converted, provided that the Company actually
      delivers the Conversion Shares within the time period required by Section
      4(d)(ii) herein. Interest hereunder will be paid to the Person in whose name
      this Debenture is registered on the records of the Company regarding
      registration and transfers of this Debenture (the “Debenture
      Register”).
      Except as otherwise provided herein, if at any time the Company pays interest
      partially in cash and partially in shares of Common Stock to the holders of
      the
      Debentures, then such payment of cash shall be distributed ratably among the
      holders of the then-outstanding Debentures based on their (or their
      predecessor’s) initial purchases of Debentures pursuant to the Purchase
      Agreement.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

    d)  Late
      Fee.
      All
      overdue accrued and unpaid interest to be paid hereunder shall entail a late
      fee
      at an interest rate equal to the lesser of 15% per annum or the maximum rate
      permitted by applicable law (“Late
      Fees”)
      which
      shall accrue daily from the date such interest is due hereunder through and
      including the date of payment in full. Notwithstanding anything to the contrary
      contained herein, if on any Interest Payment Date the Company has elected to
      pay
      accrued interest in the form of Common Stock but the Company is not permitted
      to
      pay accrued interest in Common Stock because it fails to satisfy the conditions
      for payment in Common Stock set forth in Section 2(a) herein, then, at
      the
      option of the Holder, the
      Company shall pay the regularly scheduled interest payment in cash. If any
      Interest Conversion Shares are issued to the Holder in connection with an
      Interest Payment Date and are not applied against an Interest Share Amount,
      then
      the Holder shall promptly return such excess shares to the Company.

     

    e)  Prepayment.
      Except
      as otherwise set forth in this Debenture, the Company may not prepay any portion
      of the principal amount of this Debenture without the prior written consent
      of
      the Holder. 

    

    Section
      3.  Registration
      of Transfers and Exchanges.
      

     

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

     

    b)  Investment
      Representations.
      This
      Debenture has been issued subject to certain investment representations of
      the
      original Holder set forth in the Purchase Agreement and may be transferred
      or
      exchanged only in compliance with the Purchase Agreement and applicable federal
      and state securities laws and regulations. 

    

    c)  Reliance
      on Debenture Register.
      Prior
      to due presentment for transfer to the Company of this Debenture, the Company
      and any agent of the Company may treat the Person in whose name this Debenture
      is duly registered on the Debenture Register as the owner hereof for the purpose
      of receiving payment as herein provided and for all other purposes, whether
      or
      not this Debenture is overdue, and neither the Company nor any such agent shall
      be affected by notice to the contrary.

    

    Section
      4.  Conversion.

     

    a)  Voluntary
      Conversion.
      At any
      time after the Original Issue Date until this Debenture is no longer
      outstanding, this Debenture shall be convertible, in whole or in part, into
      shares of Common Stock at the option of the Holder, at any time and from time
      to
      time (subject to the conversion limitations set forth in Section 4(c)
      hereof). The Holder shall effect conversions by delivering to the Company a
      Notice of Conversion, the form of which is attached hereto as Annex
      A
      (a
“Notice
      of Conversion”),
      specifying therein the principal amount of this Debenture to be converted and
      the date on which such conversion shall be effected (such date, the
“Conversion
      Date”).
      If no
      Conversion Date is specified in a Notice of Conversion, the Conversion Date
      shall be the date that such Notice of Conversion is deemed delivered hereunder.
      To effect conversions hereunder, the Holder shall not be required to physically
      surrender this Debenture to the Company unless the entire principal amount
      of
      this Debenture, plus all accrued and unpaid interest thereon, has been so
      converted. Conversions hereunder shall have the effect of lowering the
      outstanding principal amount of this Debenture in an amount equal to the
      applicable conversion. The Holder and the Company shall maintain records showing
      the principal amount(s) converted and the date of such conversion(s). The
      Company shall deliver an objection to any Notice of Conversion within 1 Business
      Day of delivery of such Notice of Conversion. In the event of any dispute or
      discrepancy, the records of the Company shall be controlling and determinative
      in the absence of manifest error; provided,
      however,
      in the
      event of a dispute the Company shall deliver Conversion Shares to the extent
      that no dispute exists and in the event that the Company is later proved to
      be
      in error the Holder shall have the right to seek all remedies hereunder
      retroactive to the Conversion Date. The
      Holder, and any assignee by acceptance of this Debenture, acknowledge and agree
      that, by reason of the provisions of this paragraph, following conversion of
      a
      portion of this Debenture, the unpaid and unconverted principal amount of this
      Debenture may be less than the amount stated on the face
      hereof.

     

    
      
        
        

      

      
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    b)  Conversion
      Price.
      The
      conversion price in effect on any Conversion Date shall be equal to $2.00,
      subject
      to adjustment herein (the “Conversion
      Price”).

    

    c)  Holder’s
      Restriction on Conversion.
      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 set forth on the applicable Notice of
      Conversion, 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 the Warrants) beneficially owned by such
      Holder or any of its Affiliates.  Except as set forth in the preceding
      sentence, for purposes of this Section 4(c), 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 4(c) 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 Notice of Conversion shall be deemed to be such Holder’s determination of
      whether this Debenture may be converted (in relation to other securities owned
      by such Holder together with any Affiliates) and which principal amount of
      this
      Debenture is convertible, in each case subject to such aggregate percentage
      limitations. To ensure compliance with this restriction, each Holder will be
      deemed to represent to the Company each time it delivers a Notice of Conversion
      that such Notice of Conversion 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 4(c), in determining the number of outstanding shares
      of Common Stock, a Holder may rely on the number of outstanding shares of Common
      Stock as stated in 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.  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 4(c) may be waived by such Holder, at
      the
      election of such Holder, upon not less than 61 days’ prior notice to the
      Company, to change the Beneficial Ownership Limitation to 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 this Debenture held by
      the
      Holder and the provisions of this Section 4(c) shall continue to apply. Upon
      such a change by a Holder of the Beneficial Ownership Limitation from such
      4.99%
      limitation to such 9.99% limitation, the Beneficial Ownership Limitation may
      not
      be further waived by such Holder. The provisions of this paragraph shall be
      construed and implemented in a manner otherwise than in strict conformity with
      the terms of this Section 4(c) 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.
      The
      limitations contained in this paragraph shall apply to a successor holder of
      this
      Debenture.

    
      
        
        

      

      
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      	d)  	
              Mechanics
                of Conversion.

            

    

     

    i.  Conversion
      Shares Issuable Upon Conversion of Principal Amount.
      The
      number of shares of Common Stock issuable upon a conversion hereunder shall
      be
      determined by the quotient obtained by dividing (x) the outstanding principal
      amount of this Debenture to be converted by (y) the Conversion
      Price.

    

    ii.  Delivery
      of Certificate Upon Conversion.
      Not
      later than three Trading Days after each Conversion Date (the “Share
      Delivery Date”),
      the
      Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
      or certificates representing the Conversion Shares which, on or after the
      Effective Date, shall be free of restrictive legends and trading restrictions
      (other than those which may then be required by the Purchase Agreement)
      representing the number of shares of Common Stock being acquired upon the
      conversion of this Debenture (including, if the Company has given continuous
      notice pursuant to Section 2(b) for payment of interest in shares of Common
      Stock at least 5 Trading Days prior to the date on which the Conversion Notice
      is delivered to the Company, shares of Common Stock representing the payment
      of
      accrued interest otherwise determined pursuant to Section 2(a) but assuming
      that
      the Interest Payment Period is the 5 Trading Days period immediately prior
      to
      the date on which the Conversion Notice is delivered to the Company and
      excluding for such issuance the condition that the Company deliver Interest
      Conversion Shares as to such interest payment) and (B) a Company check or wire
      transfer of immediately available funds in the amount of accrued and unpaid
      interest (if the Company has elected or is required to pay accrued interest
      in
      cash). On or after the Effective Date, the Company shall use its best efforts
      to
      deliver any certificate or certificates required to be delivered by the Company
      under this Section 4 electronically through the Depository Trust Company or
      another established clearing corporation performing similar functions.

     

    iii.  Failure
      to Deliver Certificates.
      If in
      the case of any Notice of Conversion such certificate or certificates are not
      delivered to or as directed by the applicable Holder by the 2nd
      Trading
      Day immediately following the Shares Delivery Date, the Holder shall be entitled
      to elect by written notice to the Company at any time on or before its receipt
      of such certificate or certificates, to rescind such Conversion, in which event
      the Company shall promptly return to the Holder any original Debenture delivered
      to the Company and the Holder shall promptly return the Common Stock
      certificates representing the principal amount of this Debenture tendered for
      conversion to the Company. 

     

    iv.  Obligation
      Absolute; Partial Liquidated Damages.
      The
      Company’s obligations to issue and deliver the Conversion Shares upon conversion
      of this Debenture in accordance with the terms hereof are absolute and
      unconditional, irrespective of any action or inaction by the Holder to enforce
      the same, any waiver or consent with respect to any provision hereof, the
      recovery of any judgment against any Person or any action to enforce the same,
      or any setoff, counterclaim, recoupment, limitation or termination, or any
      breach or alleged breach by the Holder or any other Person of any obligation
      to
      the Company or any violation or alleged violation of law by the Holder or any
      other Person, and irrespective of any other circumstance which might otherwise
      limit such obligation of the Company to the Holder in connection with the
      issuance of such Conversion Shares; provided,
      however,
      that
      such delivery shall not operate as a waiver by the Company of any such action
      the Company may have against the Holder. In the event the Holder of this
      Debenture shall elect to convert any or all of the outstanding principal amount
      hereof, the Company may not refuse conversion based on any claim that the Holder
      or anyone associated or affiliated with the Holder has been engaged in any
      violation of law, agreement or for any other reason, unless an injunction from
      a
      court, on notice to Holder, restraining and or enjoining conversion of all
      or
      part of this Debenture shall have been sought and obtained, and the Company
      posts a surety bond for the benefit of the Holder in the amount of 150% of
      the
      outstanding principal amount of this Debenture, which is subject to the
      injunction, which bond shall remain in effect until the completion of
      arbitration/litigation of the underlying dispute and the proceeds of which
      shall
      be payable to such Holder to the extent it obtains judgment. In the absence
      of
      such injunction, the Company shall issue Conversion Shares or, if applicable,
      cash, upon a properly noticed conversion. If the Company fails for any reason
      to
      deliver to the Holder such certificate or certificates pursuant to Section
      4(d)(ii) by the fifth Trading Day after the Conversion Date, the Company shall
      pay to such Holder, in cash, as liquidated damages and not as a penalty, for
      each $1000 of principal amount being converted, $10 per Trading Day (increasing
      to $20 per Trading Day on the fifth Trading Day after such liquidated damages
      begin to accrue) for each Trading Day after the 2nd
      Trading
      Day immediately following the Shares Delivery Date until such certificates
      are
      delivered. Nothing herein shall limit a Holder’s right to pursue actual damages
      or declare an Event of Default pursuant to Section 8 hereof for the Company’s
      failure to deliver Conversion Shares within the period specified herein and
      such
      Holder shall have the right to pursue all remedies available to it hereunder,
      at
      law or in equity including, without limitation, a decree of specific performance
      and/or injunctive relief. The exercise of any such rights shall not prohibit
      the
      Holder from seeking to enforce damages pursuant to any other Section hereof
      or
      under applicable law.

    
      
        
        

      

      
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    v.  Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Conversion.
      In
      addition to any other rights available to the Holder, if the Company fails
      for
      any reason to deliver to the Holder such certificate or certificates by the
      2nd
      Trading
      Day immediately following the Share Delivery Date pursuant to Section 4(d)(ii),
      and if after such Share Delivery Date the Holder is required by its brokerage
      firm to purchase (in an open market transaction or otherwise), or the Holder’s
      brokerage firm otherwise purchases, shares of Common Stock to deliver in
      satisfaction of a sale by such Holder of the Conversion Shares which the Holder
      was entitled to receive upon the conversion relating to such Share Delivery
      Date
      (a “Buy-In”),
      then
      the Company shall (A) pay in cash to the Holder (in addition to any other
      remedies available to or elected by the Holder) the amount by which (x) the
      Holder’s total purchase price (including any brokerage commissions) for the
      Common Stock so purchased exceeds (y) the product of (1) the aggregate number
      of
      shares of Common Stock that such Holder was entitled to receive from the
      conversion at issue multiplied by (2) the actual sale price at which the sell
      order giving rise to such purchase obligation was executed (including any
      brokerage commissions) and (B) at the option of the Holder, either reissue
      (if
      surrendered) this Debenture in a principal amount equal to the principal amount
      of the attempted conversion or deliver to the Holder the number of shares of
      Common Stock that would have been issued if the Company had timely complied
      with
      its delivery requirements under Section 4(d)(ii). For example, if the Holder
      purchases Common Stock having a total purchase price of $11,000 to cover a
      Buy-In with respect to an attempted conversion of this Debenture with respect
      to
      which the actual sale price of the Conversion Shares (including any brokerage
      commissions) giving rise to such purchase obligation was a total of $10,000
      under clause (A) of the immediately preceding sentence, the Company shall be
      required to pay the Holder $1,000. The Holder shall provide the Company written
      notice indicating the amounts payable to the Holder in respect of the Buy-In
      and, upon request of the Company, evidence of the amount of such loss. Nothing
      herein shall limit a Holder’s right to pursue any other remedies available to it
      hereunder, at law or in equity including, without limitation, a decree of
      specific performance and/or injunctive relief with respect to the Company’s
      failure to timely deliver certificates representing shares of Common Stock
      upon
      conversion of this Debenture as required pursuant to the terms
      hereof.

    
      
        
        

      

      
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    vi.  Reservation
      of Shares Issuable Upon Conversion.
      The
      Company covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued shares of Common Stock for the sole purpose of
      issuance upon conversion of this Debenture and payment of interest on this
      Debenture, each as herein provided, free from preemptive rights or any other
      actual contingent purchase rights of Persons other than the Holder (and the
      other holders of the Debentures), not less than such aggregate number of shares
      of the Common Stock as shall (subject to the terms and conditions set forth
      in
      the Purchase Agreement) be issuable (taking into account the adjustments and
      restrictions of Section 5) upon the conversion of the outstanding principal
      amount of this Debenture and payment of interest hereunder. The Company
      covenants that all shares of Common Stock that shall be so issuable shall,
      upon
      issue, be duly authorized, validly issued, fully paid and nonassessable and,
      if
      the Registration Statement is then effective under the Securities Act, shall
      be
      registered for public sale in accordance with such Registration
      Statement.

    
      
        
        

      

      
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    vii.  Fractional
      Shares.
      Upon a
      conversion hereunder the Company shall not be required to issue stock
      certificates representing fractions of shares of Common Stock, but shall instead
      round the fraction to the nearest whole share.

    

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

    

    Section
      5. Certain
      Adjustments.

     

    a)  Stock
      Dividends and Stock Splits.
      If the
      Company, at any time while this Debenture is outstanding: (A) pays a stock
      dividend or otherwise makes a distribution or distributions payable in shares
      of
      Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
      for avoidance of doubt, shall not include any shares of Common Stock issued
      by
      the Company upon conversion of, or payment of interest on, the Debentures);
      (B)
      subdivides outstanding shares of Common Stock into a larger number of shares;
      (C) combines (including by way of a reverse stock split) outstanding shares
      of
      Common Stock into a smaller number of shares; or (D) issues, in the event of
      a
      reclassification of shares of the Common Stock, any shares of capital stock
      of
      the Company, then the Conversion Price shall be multiplied by a fraction of
      which the numerator shall be the number of shares of Common Stock (excluding
      any
      treasury shares of the Company) outstanding immediately before such event and
      of
      which the denominator shall be the number of shares of Common Stock outstanding
      immediately after such event. Any adjustment made pursuant to this Section
      shall
      become effective immediately after the record date for the determination of
      stockholders entitled to receive such dividend or distribution and shall become
      effective immediately after the effective date in the case of a subdivision,
      combination or re-classification.

     

    
      
        
        

      

      
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    b)  Subsequent
      Equity Sales.
      If, at
      any time while this Debenture is outstanding, the Company or any Subsidiary,
      as
      applicable, sells or grants any option to purchase or sells or grants any right
      to reprice, or otherwise disposes of or issues (or announces any sale, grant
      or
      any option to purchase or other disposition), any Common Stock or Common Stock
      Equivalents entitling any Person to acquire shares of Common Stock at an
      effective price per share that is lower than the then Conversion Price (such
      lower price, the “Base
      Conversion Price”
and
      such issuances, collectively, a “Dilutive
      Issuance”)
      (if
      the holder of the Common Stock or Common Stock Equivalents so issued shall
      at
      any time, whether by operation of purchase price adjustments, reset provisions,
      floating conversion, exercise or exchange prices or otherwise, or due to
      warrants, options or rights per share which are issued in connection with such
      issuance, be entitled to receive shares of Common Stock at an effective price
      per share that is lower than the Conversion Price, such issuance shall be deemed
      to have occurred for less than the Conversion Price on such date of the Dilutive
      Issuance), then the Conversion Price shall be reduced to equal the Base
      Conversion Price. Such adjustment shall be made whenever such Common Stock
      or
      Common Stock Equivalents are issued. Notwithstanding
      the foregoing, no adjustment will be made under this Section 5(b) in respect
      of
      an Exempt Issuance.
      Notwithstanding
      anything herein or in any other Transaction Document to the contrary, it is
      expressly agreed that any amendments, adjustments or resets that result in
      future issuances of Common Stock or Common Stock Equivalents pursuant to that
      certain Securities Purchase Agreement, dated August 17, 2006, by and among
      the
      Company, Integrated Power Systems LLC, Power Designs Inc., The Vantage Partners
      LLC, Technipower LLC and the other parties listed on the signature pages
      thereto, or pursuant to any other agreements or documents entered into or issued
      in connection therewith, shall not be an Exempt Issuance and shall result in
      an
      adjustment hereunder. The
      Company shall notify the Holder in writing, no later than 2 Business Days
      following the issuance of any Common Stock or Common Stock Equivalents subject
      to this Section 5(b), indicating therein the applicable issuance price, or
      applicable reset price, exchange price, conversion price and other pricing
      terms
      (such notice, the “Dilutive
      Issuance Notice”).
      For
      purposes of clarification, whether or not the Company provides a Dilutive
      Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
      Dilutive Issuance, the Holder shall be entitled to receive upon conversion
      of
      this Debenture a number of Conversion Shares based upon the Base Conversion
      Price on or after the date of such Dilutive Issuance, regardless of whether
      the
      Holder accurately refers to the Base Conversion Price in the Notice of
      Conversion. For purposes of any adjustment in the Conversion Price made pursuant
      to this Section 5(b), the following shall apply: (i) in the case of the issuance
      of Common Stock for cash, the consideration shall be deemed to be the amount
      of
      cash paid; (ii) in the case of the issuance of Common Stock for a consideration
      in whole or in part other than cash, the consideration other than cash shall
      be
      deemed to be the fair value thereof as determined in good faith by the Board;
      (iii) the number of shares of Common Stock deliverable upon exercise of Common
      Stock Equivalents shall be deemed to have been issued at the time such Common
      Stock Equivalents were issued and for a consideration equal to the consideration
      (determined in the manner provided in (i) and (ii) above), if any, received
      by
      the Company upon the issuance of such Common Stock Equivalents plus the purchase
      price, if any, provided in such Common Stock Equivalents for the additional
      Common Stock covered thereby; (iv) the number of shares of Common Stock
      deliverable upon conversion of or in exchange for any Common Stock Equivalents
      and subsequent conversion or exchange thereof shall be deemed to have been
      issued at the time such Common Stock Equivalents were issued and for a
      consideration equal to the consideration, if any, received by the Company for
      any such Common Stock Equivalents, plus the additional consideration, if any,
      to
      be received by the Company upon the conversion or exchange of such securities
      or
      the exercise of any related Common Stock Equivalents (the consideration in
      each
      case to be determined in the manner provided in (i) and (ii) above); (v) in
      the
      event of any change in the number of shares of Common Stock deliverable or
      any
      increase or decrease in the consideration payable to the Company upon exercise
      of Common Stock Equivalents or upon conversion of or in exchange for such Common
      Stock Equivalents (including, but not limited to, a change resulting from the
      anti-dilution provisions thereof), the Conversion Price in effect at the time
      obtained with respect to the adjustment which was made upon the issuance of
      such
      Common Stock Equivalents, and any subsequent adjustments based thereon, shall
      be
      recomputed to reflect such change (assuming no exercise or conversion occurred
      of such Common Stock Equivalents), but no further adjustment shall be made
      for
      the actual issuance of Common Stock or any payment of such consideration upon
      the exercise of or the conversion or exchange of such Common Stock Equivalents,
      provided that the Company shall have provided the Holder at least 5 days’ prior
      written notice of any such adjustment during which the Holder may convert at
      the
      prevailing conversion rate; and (vi) upon the expiration or termination of
      any
      such Common Stock Equivalents assuming no exercise or conversion thereof, in
      whole or in part, the Conversion Price in effect at the time obtained with
      respect to the adjustment which was made upon the issuance of such Common Stock
      Equivalents shall be adjusted to the price that would have been in effect had
      the adjustment not occurred, subject to other adjustments in the interim,
      provided that the Company shall have provided the Holder at least 5 days’ prior
      written notice of any such adjustment during which the Holder may convert at
      the
      prevailing conversion rate.

     

    
      
        
        

      

      
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    c)  [INTENTIONALLY
      DELETED]. 

     

    d)  [INTENTIONALLY
      DELETED]

     

    e)  Fundamental
      Transaction.
      If, at
      any time while this Debenture is outstanding, (A) the Company effects any merger
      or consolidation of the Company with or into another Person, (B) the Company
      effects any sale of all or substantially all of its assets in one transaction
      or
      a series of related transactions, (C) any tender offer or exchange offer
      (whether by the Company or another Person) is completed pursuant to which
      holders of Common Stock are permitted to tender or exchange their shares for
      other securities, cash or property, or (D) the Company effects any
      reclassification of the Common Stock or any compulsory share exchange pursuant
      to which the Common Stock is effectively converted into or exchanged for other
      securities, cash or property (in any such case, a “Fundamental
      Transaction”),
      then,
      upon any subsequent conversion of this Debenture, the Holder shall have the
      right to receive, for each Conversion Share that would have been issuable upon
      such conversion immediately prior to the occurrence of such Fundamental
      Transaction, the same kind and amount of securities, cash or property as it
      would have been entitled to receive upon the occurrence of such Fundamental
      Transaction if it had been, immediately prior to such Fundamental Transaction,
      the holder of 1 share of Common Stock (the “Alternate
      Consideration”).
      For
      purposes of any such conversion, the determination of the Conversion Price
      shall
      be appropriately adjusted to apply to such Alternate Consideration based on
      the
      amount of Alternate Consideration issuable in respect of 1 share of Common
      Stock
      in such Fundamental Transaction, and the Company shall apportion the Conversion
      Price among the Alternate Consideration in a reasonable manner reflecting the
      relative value of any different components of the Alternate Consideration.
      If
      holders of Common Stock are given any choice as to the securities, cash or
      property to be received in a Fundamental Transaction, then the Holder shall
      be
      given the same choice as to the Alternate Consideration it receives upon any
      conversion of this Debenture following such Fundamental Transaction. To the
      extent necessary to effectuate the foregoing provisions, any successor to the
      Company or surviving entity in such Fundamental Transaction shall issue to
      the
      Holder a new debenture consistent with the foregoing provisions and evidencing
      the Holder’s right to convert such debenture into Alternate Consideration. The
      terms of any agreement pursuant to which a Fundamental Transaction is effected
      shall include terms requiring any such successor or surviving entity to comply
      with the provisions of this Section 5(e) and insuring that this Debenture (or
      any such replacement security) will be similarly adjusted upon any subsequent
      transaction analogous to a Fundamental Transaction.

     

    
      
        
        

      

      
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    f)  Calculations.
      All
      calculations under this Section 5 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be. For purposes of this Section
      5,
      the number of shares of Common Stock deemed to be issued and outstanding as
      of a
      given date shall be the sum of the number of shares of Common Stock (excluding
      any treasury shares of the Company) issued and outstanding.

    

    g)  Notice
      to the Holder.

    

    i.  Adjustment
      to Conversion Price.
      Whenever the Conversion Price is adjusted pursuant to any provision of this
      Section 5, the Company shall promptly mail to each Holder a notice setting
      forth
      the Conversion Price after such adjustment and basic terms of the dilutive
      security and setting forth a brief statement of the facts requiring such
      adjustment. If the Company enters into a Variable Rate Transaction, despite
      the
      prohibition thereon in the Purchase Agreement, the Company shall be deemed
      to
      have issued Common Stock or Common Stock Equivalents at the lowest possible
      conversion price at which such securities may be converted or
      exercised.

     

    ii.  Notice
      to Allow Conversion by Holder.
      If (A)
      the Company shall declare a dividend (or any other distribution in whatever
      form) on the Common Stock, (B) the Company shall declare a special nonrecurring
      cash dividend on or a redemption of the Common Stock, (C) the Company shall
      authorize the granting to all holders of the Common Stock of rights or warrants
      to subscribe for or purchase any shares of capital stock of any class or of
      any
      rights, (D) the approval of any stockholders of the Company shall be required
      in
      connection with any reclassification of the Common Stock, any consolidation
      or
      merger to which the Company is a party, any sale or transfer of all or
      substantially all of the assets of the Company, of any compulsory share exchange
      whereby the Common Stock is converted into other securities, cash or property
      or
      (E) the
      Company shall authorize the voluntary or involuntary dissolution, liquidation
      or
      winding up of the affairs of the Company, then, in each case, the Company shall
      cause to be filed at each office or agency maintained for the purpose of
      conversion of this Debenture, and shall cause to be delivered
      to the Holder at its last address as it shall appear upon the Debenture
      Register, at least 10 calendar days prior to the applicable record or effective
      date hereinafter specified, a notice stating (x)
      the
      date on which a record is to be taken for the purpose of such dividend,
      distribution, redemption, rights or warrants, or if a record is not to be taken,
      the date as of which the holders of the Common Stock of record to be entitled
      to
      such dividend, distributions, redemption, rights or warrants are to be
      determined or (y) the date on which such reclassification, consolidation,
      merger, sale, transfer or share exchange is expected to become effective or
      close, and the date as of which it is expected that holders of the Common Stock
      of record shall be entitled to exchange their shares of the Common Stock for
      securities, cash or other property deliverable upon such reclassification,
      consolidation, merger, sale, transfer or share exchange, provided that the
      failure to deliver such notice or any defect therein or in the delivery thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice. The Holder is entitled to convert this Debenture during the
      10-day period commencing on the date of such notice through the effective date
      of the event triggering such notice.

     

    
      
        
        

      

      
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    Section
      6. Monthly
      Redemption.

    

    a)  Monthly
      Redemption.
      On each
      Monthly Redemption Date, the Company shall redeem the Monthly Redemption Amount
      (such redemption, the “Monthly
      Redemption”).
      The
      Monthly Redemption Amount payable on each Monthly Redemption Date shall be
      paid
      in cash; provided,
      however,
      as to
      any Monthly Redemption and upon 12 Trading Days’ prior written irrevocable
      notice (the “Monthly
      Redemption Notice”),
      in
      lieu of a cash redemption payment the Company may elect to pay all or part
      of a
      Monthly Redemption Amount in Conversion Shares (such amount in U.S. dollars
      to
      be paid on a Monthly Redemption Date in Conversion Shares, the “Monthly
      Redemption Share Amount”)
      based
      on a conversion price equal to 82.5% of the average of the VWAPs for the 10
      consecutive Trading Days ending on the Trading Day that is immediately prior
      to
      the applicable Monthly Redemption Date (the price calculated during the 10
      Trading Day period immediately prior to the Monthly Redemption Date, the
“Monthly
      Redemption Price”
and
      such 10 Trading Day period, the “Monthly
      Redemption Period”);
      provided,
      further,
      that
      the Company may not pay the Monthly Redemption Amount in Conversion Shares
      unless (y) from the date the Holder receives the duly delivered Monthly
      Redemption Notice through and until the date such Monthly Redemption is paid
      in
      full, the Equity Conditions have been satisfied, unless waived in writing by
      the
      Holder, and (z) as to such Monthly Redemption, prior to such Monthly Redemption
      Period (but not more than 5 Trading Days prior to the commencement of the
      Monthly Redemption Period), the Company shall have delivered to the Holder’s
      account with The Depository Trust Company (the date of such delivery, the
“Pre-Redemption
      Conversion Shares Delivery Date”)
      a
      number of shares of Common Stock to be applied against such Monthly Redemption
      Share Amount equal to the applicable Monthly Redemption Share Amount divided
      by
      82.5% of the average of the VWAPs for the 10 consecutive Trading Days
      immediately preceding the Pre-Redemption Conversion Shares Delivery Date (the
      “Pre-Redemption
      Conversion Shares”).
      The
      Holder may convert, pursuant to Section 4(a), any principal amount of this
      Debenture subject to a Monthly Redemption at any time prior to the date that
      the
      Monthly Redemption Amount is due and paid in full. Unless otherwise indicated
      by
      the Holder in the applicable Notice of Conversion, any principal amount of
      this
      Debenture converted during the applicable Monthly Redemption Period until the
      date the Monthly Redemption Amount is paid in full shall be first applied to
      the
      principal amount subject to the Monthly Redemption Amount payable in cash and
      then to the Monthly Redemption Share Amount. Any principal amount of this
      Debenture converted during the applicable Monthly Redemption Period in excess
      of
      the Monthly Redemption Amount shall be applied against the last principal amount
      of this Debenture scheduled to be redeemed hereunder, in reverse time order
      from
      the Maturity Date; provided,
      however,
      if any
      such conversion is applied against such Monthly Redemption Amount, the
      Pre-Redemption Conversion Shares, if any were issued in connection with such
      Monthly Redemption or were not already applied to such conversions, shall be
      first applied against such conversion. The Company covenants and agrees that
      it
      will honor all Notices of Conversion tendered up until such amounts are paid
      in
      full. The Company’s determination to pay a Monthly Redemption in cash, shares of
      Common Stock or a combination thereof shall be applied ratably to all of the
      holders of the then outstanding Debentures based on their (or their
      predecessor’s) initial purchases of Debentures pursuant to the Purchase
      Agreement. At any time the Company delivers a notice to the Holder of its
      election to pay the Monthly Redemption Amount in shares of Common Stock, the
      Company shall file a prospectus supplement pursuant to Rule 424 disclosing
      such
      election.

    
      
        
        

      

      
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    b)  Optional
      Redemption at Election of Company.
      Subject
      to the provisions of this Section 6, at any time after the Effective Date,
      the
      Company may deliver a notice to the Holder (an “Optional
      Redemption Notice”
and
      the
      date such notice is deemed delivered hereunder, the “Optional
      Redemption Notice Date”)
      of its
      irrevocable election to redeem some or all of the then outstanding principal
      amount of this Debenture for cash in an amount equal to the Optional Redemption
      Amount on the 12th
      Trading
      Day following the Optional Redemption Notice Date (such date, the “Optional
      Redemption Date”
and
      such redemption, the “Optional
      Redemption”).
      The
      Optional Redemption Amount is payable in full on the Optional Redemption Date.
      The Company may only effect an Optional Redemption if each of the Equity
      Conditions shall have been met on each Trading Day during the period commencing
      on the Optional Redemption Notice Date through to the Optional Redemption Date
      and
      through and including the date payment of the Optional Redemption Amount is
      actually made.
      If any
      of the Equity Conditions shall cease to be satisfied at any time during the
      12
      Trading Day period, then the Holder may elect to nullify the Optional Redemption
      Notice by notice to the Company within 3 Trading Days after the first day on
      which any such Equity Condition has not been met (provided that if, by a
      provision of the Transaction Documents, the Company is obligated to notify
      the
      Holder of the non-existence of an Equity Condition, such notice period shall
      be
      extended to the third Trading Day after proper notice from the Company) in
      which
      case the Optional Redemption Notice shall be null and void, ab initio.
      The
      Company covenants and agrees that it will honor all Notices of Conversion
      tendered from the time of delivery of the Optional Redemption Notice through
      the
      date all amounts owing thereon are paid in full.

    

    c)  Redemption
      Procedure.
      The
      payment of cash or, in the case of a Monthly Redemption, the issuance of Common
      Stock if applicable, shall be payable on the Monthly Redemption Date or Optional
      Redemption Date, as the case may be. In the case of a Monthly Redemption, in
      the
      event that the number of Pre-Redemption Conversion Shares exceeds the number
      of
      Conversion Shares required to be issued on the Monthly Redemption Date as set
      forth in Section 6(a), within 3 Trading Days the Holder shall either (i) return
      such excess Pre-Redemption Conversion Shares to the Company for cancellation
      or
      (ii) convert an additional principal amount of this Debenture at the Conversion
      Price to be applied against such excess Pre-Redemption Conversion Shares. If
      any
      portion of the payment pursuant to a Monthly Redemption or Optional Redemption
      shall not be paid by the Company by the applicable due date, interest shall
      accrue thereon at an interest rate equal to the lesser of 15% per annum or
      the
      maximum rate permitted by applicable law until such amount is paid in full.
      Notwithstanding anything herein contained to the contrary, if any portion of
      the
      Optional Redemption Amount or Monthly Redemption Amount, as applicable, remains
      unpaid after such date, the Holder may elect, by written notice to the Company
      given at any time thereafter accompanied by any payments of cash or Common
      Stock
      therefore paid by the Company in respect of such redemption, to invalidate
      such Optional Redemption or Monthly Redemption, ab initio.
      Notwithstanding anything to the contrary in this Section 6, the Company’s
      determination to redeem in cash or its elections under Section 6(a) shall be
      applied ratably among the Holders of Debentures.
      The
      Holder may elect to convert the outstanding principal amount of the Debenture
      subject to redemptions under Sections 6(a) or 6(b) pursuant to Section 4 at
      any
      time prior to actual payment in cash for any redemption under this Section
      6 by
      the delivery of a Notice of Conversion to the Company. For purposes of
      clarification, the Warrants held by the Holder shall not be required to be
      surrendered in any redemption under this Debenture.

     

    
      
        
        

      

      
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    Section
      7. Negative
      Covenants.
      As long
      as any portion of this Debenture remains outstanding, the Company shall not,
      and
      shall not permit any of its Subsidiaries to, directly or indirectly, except
      with
      the prior written consent of the Agent (as defined in the Security
      Agreement):

    

    a)  other
      than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
      suffer to exist any indebtedness for borrowed money of any kind, including
      but
      not limited to, a guarantee;

     

    b)  other
      than Permitted Liens, enter into, create, incur, assume or suffer to exist
      any
      Liens of any kind, on or with respect to any of its property or assets now
      owned
      or hereafter acquired or any interest therein or any income or profits
      therefrom;

    

    c)  amend
      its
      charter documents, including, without limitation, the certificate of
      incorporation and bylaws, in any manner that materially and adversely affects
      any rights of the Holder;

    

    d)  repay,
      repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis
      number
      of shares of its Common Stock or Common Stock Equivalents other than as to
      (a)
      the Conversion Shares or Warrant Shares as permitted or required under the
      Transaction Documents, (b) repurchases of Common Stock or Common Stock
      Equivalents of departing officers and directors of the Company, provided that
      such repurchases shall not exceed an aggregate of $100,000 for all officers
      and
      directors during the term of this Debenture and (c) the redemption at or
      promptly following the Closing of all or a portion of the Series C Preferred
      Stock of the Company from the proceeds of the sale of the Debentures which
      shall
      not exceed, in the aggregate, $3.4 million; 

    
      
        
        

      

      
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    e)  pay
      cash
      dividends or distributions on any equity securities of the Company;

    

    f)  enter
      into any transaction with any Affiliate of the Company which would be required
      to be disclosed in any public filing with the Commission, unless such
      transaction is made on an arm’s-length basis and expressly approved by a
      majority of the disinterested directors of the Company (even if less than a
      quorum otherwise required for board approval); or

    

    g)  enter
      into any agreement with respect to any of the foregoing.

     

    Section
      8. Events
      of Default.
      

    

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

    

    i.  any
      default in the payment of (A) the principal amount of any Debenture or (B)
      interest, liquidated damages and other amounts owing to a Holder on any
      Debenture, as and when the same shall become due and payable (whether on a
      Conversion Date or the Maturity Date or by acceleration or otherwise) which
      default, solely in the case of an interest payment or other default under clause
      (B) above, is not cured within 3 Trading Days;

     

    ii.  the
      Company shall fail to observe or perform any other covenant or agreement
      contained in the Debentures (other than a breach by the Company of its
      obligations to deliver shares of Common Stock to the Holder upon conversion,
      which breach is addressed in clause (xi) below) which failure is not cured,
      if
      possible to cure, within the earlier to occur
      of
(A)
      5
Trading
      Days after notice of such failure sent by the Holder or by any other
      Holder
      and (B)
      10 Trading Days after the Company has become or should have become aware of
      such
      failure;

    

    iii.  a
      default
      or event of default (subject to any grace or cure period provided in the
      applicable agreement, document or instrument) shall occur under (A) any of
      the
      Transaction Documents or (B) any other material agreement, lease, document
      or
      instrument to which the Company or any Subsidiary is obligated (and not covered
      by clause (vi) below);

    
      
        
        

      

      
        22

        
          

        

      

       

    

    

    iv.  any
      representation
      or warranty made in this Debenture, any other Transaction Documents, any written
      statement pursuant hereto or thereto or any other report, financial statement
      or
      certificate made or delivered to the Holder or any other Holder shall
      be
      untrue or incorrect in any material respect as of the date when made or deemed
      made;

    

    v.  the
      Company or any significant Subsidiary shall be subject to a Bankruptcy
      Event;

     

    vi.  the
      Company or any Subsidiary shall default on any of its obligations under any
      mortgage, credit agreement or other facility, indenture agreement, factoring
      agreement or other instrument under which there may be issued, or by which
      there
      may be secured or evidenced, any indebtedness for borrowed money or money due
      under any long term leasing or factoring arrangement that (a) involves an
      obligation greater than $150,000, whether such indebtedness now exists or shall
      hereafter be created, and (b) results in such indebtedness becoming or being
      declared due and payable prior to the date on which it would otherwise become
      due and payable; 

    

    vii.  the
      Common Stock shall not be eligible for listing or quotation for trading on
      a
      Trading Market and shall not be eligible to resume listing or quotation for
      trading thereon within five Trading Days;

    

    viii.  the
      Company shall be a party to any Change of Control Transaction or Fundamental
      Transaction or shall agree to sell or dispose of all or in excess of 40% of
      its
      assets in one transaction or a series of related transactions (whether or not
      such sale would constitute a Change of Control Transaction);

    

    ix.  a
      Registration Statement shall not have been declared effective by the Commission
      on or prior to the 210th calendar
      day after the Closing Date; 

    

    x.  if,
      during the Effectiveness Period (as defined in the Registration Rights
      Agreement), either (a) the effectiveness of the Registration Statement lapses
      for any reason or (b) the Holder shall not be permitted to resell Registrable
      Securities (as defined in the Registration Rights Agreement) under the
      Registration Statement for a period of more than 30 consecutive Trading Days
      or
      40 non-consecutive Trading Days during any 12 month period; provided,
      however,
      that if
      the Company
      is negotiating a merger, consolidation, acquisition or sale of all or
      substantially all of its assets or a similar transaction and, in the written
      opinion of counsel to the Company, the Registration Statement would be required
      to be amended to include information concerning such pending transaction(s)
      or
      the parties thereto which information is not available or may not be publicly
      disclosed at the time, the Company shall be permitted an additional 10
      consecutive Trading Days during any 12 month period pursuant to this Section
      8(a)(x);

    
      
        
        

      

      
        23

        
          

        

      

       

    

    

    xi.  the
      Company shall fail for any reason to deliver certificates to a Holder prior
      to
      the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or
      the
      Company shall provide at any time notice to the Holder, including by way of
      public announcement, of the Company’s intention to not honor requests for
      conversions of any Debentures in accordance with the terms hereof;

    

    xii.  any
      monetary judgment, writ or similar final process shall be entered or filed
      against the Company, any Subsidiary or any of their respective property or
      other
      assets for more than $50,000, and such judgment, writ or similar final process
      shall remain unvacated, unbonded or unstayed for a period of 45 calendar days;
      or

     

    xiii. if
      a
      proper Disclosure Request has been made pursuant to Section 4.6(b) of the
      Purchase Agreement and the Company fails to either (i) make public disclosure
      of
      the information that is the subject of such Disclosure Request in a manner
      consistent with Rule 101(e) of Regulation FD or (ii) provide such Purchaser
      with
      a written statement that the Company does not believe that such information
      is
      material nonpublic information or that it was delivered pursuant to the prior
      request or consent of such Purchaser, in either case within 5 business days
      of
      its receipt of such Disclosure Request.

     

    b)  Remedies
      Upon Event of Default.
      If any
      Event of Default occurs, the outstanding principal amount of this Debenture,
      plus accrued but unpaid interest, liquidated damages and other amounts owing
      in
      respect thereof through the date of acceleration, shall become, at the Holder’s
      election, immediately due and payable in cash at the Mandatory Default Amount.
      Commencing 5 days after the occurrence of any Event of Default that results
      in
      the eventual acceleration of this Debenture, the interest rate on this Debenture
      shall accrue at an interest rate equal to the lesser of 15% per annum or the
      maximum rate permitted under applicable law. Upon the payment in full of the
      Mandatory Default Amount, the Holder shall promptly surrender this Debenture
      to
      or as directed by the Company. In connection with such acceleration described
      herein, the Holder need not provide, and the Company hereby waives, any
      presentment, demand, protest or other notice of any kind, and the Holder may
      immediately and without expiration of any grace period enforce any and all
      of
      its rights and remedies hereunder and all other remedies available to it under
      applicable law. Such acceleration may be rescinded and annulled by Holder at
      any
      time prior to payment hereunder and the Holder shall have all rights as a holder
      of the Debenture until such time, if any, as the Holder receives full payment
      pursuant to this Section 8(b). No such rescission or annulment shall affect
      any
      subsequent Event of Default or impair any right consequent thereon.

    

    Section
      9. Miscellaneous.
      

     

    a)  Notices.
      Any and
      all notices or other communications or deliveries to be provided by the Holder
      hereunder, including, without limitation, any Notice of Conversion, shall be
      in
      writing and delivered personally, by facsimile, or sent by a nationally
      recognized overnight courier service, addressed to the Company, at the address
      set forth above, facsimile number (727)
      934-8779,
      Attention: Peter W. DeVecchis, Jr. or
      such
      other facsimile number or address as the Company may specify for such purpose
      by
      notice to the Holder delivered in accordance with this Section 9. Any and all
      notices or other communications or deliveries to be provided by the Company
      hereunder shall be in writing and delivered personally, by facsimile, or sent
      by
      a nationally recognized overnight courier service addressed to each Holder
      at
      the facsimile number or address of such Holder appearing on the books of the
      Company, or if no such facsimile number or address appears, at the principal
      place of business of the Holder. Any notice or other communication or deliveries
      hereunder shall be deemed given and effective on the earliest of (i) the date
      of
      transmission, if such notice or communication is delivered via facsimile at
      the
      facsimile number specified in this Section 9 prior to 5:30 p.m. (New York City
      time), (ii) the date immediately following the date of transmission, if such
      notice or communication is delivered via facsimile at the facsimile number
      specified in this Section 9 between 5:30 p.m. (New York City time) and 11:59
      p.m. (New York City time) on any date, (iii) the second Business Day following
      the date of mailing, if sent by nationally recognized overnight courier service,
      or (iv) upon actual receipt by the party to whom such notice is required to
      be
      given.

     

    
      
        
        

      

      
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    b)  Absolute
      Obligation.
      Except
      as expressly provided herein, no provision of this Debenture shall alter or
      impair the obligation of the Company, which is absolute and unconditional,
      to
      pay the principal of, liquidated damages and accrued interest, as applicable,
      on
      this Debenture at the time, place, and rate, and in the coin or currency, herein
      prescribed. This Debenture is a direct debt obligation of the Company. This
      Debenture ranks pari passu
      with all
      other Debentures now or hereafter issued under the terms set forth
      herein. 

     

    c)  Lost
      or Mutilated Debenture.
      If this
      Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
      execute and deliver, in exchange and substitution for and upon cancellation
      of a
      mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
      destroyed Debenture, a new Debenture for the principal amount of this Debenture
      so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
      of
      such loss, theft or destruction of such Debenture, and of the ownership hereof,
      reasonably satisfactory to the Company.

    

    d)  Governing
      Law; Arbitration.
      This
      Agreement shall be governed by and construed in accordance with the internal
      laws of the State of New York. Any controversy or claim arising out of or
      related to this Debenture or the breach thereof, shall be settled by binding
      arbitration in New York, New York in accordance with the Expedited Procedures
      (Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
      Association (“AAA”).
      A
      proceeding shall be commenced upon written demand by the Company or Holder
      to
      the other. The arbitrator(s) shall enter a judgment by default against any
      party, which fails or refuses to appear in any properly noticed arbitration
      proceeding. The proceeding shall be conducted by one (1) arbitrator, unless
      the
      amount alleged to be in dispute exceeds two hundred fifty thousand dollars
      ($250,000), in which case three (3) arbitrators shall preside. The arbitrator(s)
      will be chosen by the parties from a list provided by the AAA, and if the
      parties are unable to agree within ten (10) days, the AAA shall select the
      arbitrator(s). The arbitrators must be experts in securities law and financial
      transactions. The arbitrators shall assess costs and expenses of the
      arbitration, including all attorneys’ and experts’ fees, as the arbitrators
      believe is appropriate in light of the merits of the parties’ respective
      positions in the issues in dispute. Each party submits irrevocably to the
      jurisdiction of any state court sitting in New York, New York or to the United
      States District Court sitting in New York, New York for purposes of enforcement
      of any discovery order, judgment or award in connection with such arbitration.
      The award of the arbitrator(s) shall be final and binding upon the parties
      and
      may be enforced in any court having jurisdiction. The arbitration shall be
      held
      in such place as set by the arbitrator(s) in accordance with Rule 55. With
      respect to any arbitration proceeding in accordance with this section, the
      prevailing party’s reasonable attorney’s fees and expenses shall be borne by the
      non-prevailing party.

    
      
        
        

      

      
        25

        
          

        

      

       

    

    

    Although
      the parties, as expressed above, agree that all claims, including claims that
      are equitable in nature, for example specific performance, shall initially
      be
      prosecuted in the binding arbitration procedure outlined above, if the
      arbitration panel dismisses or otherwise fails to entertain any or all of the
      equitable claims asserted by reason of the fact that it lacks jurisdiction,
      power and/or authority to consider such claims and/or direct the remedy
      requested, then, in only that event, will the parties have the right to initiate
      litigation respecting such equitable claims or remedies. The forum for such
      equitable relief shall be in either a state or federal court sitting in New
      York, New York. Each party waives any right to a trial by jury, assuming such
      right exists in an equitable proceeding, and irrevocably submits to the
      jurisdiction of said New York court. New York law shall govern both the
      proceeding as well as the interpretation and construction of this Agreement
      and
      the transaction as a whole.

     

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

     

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

    
      
        
        

      

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

    

    h)  Headings.
      The
      headings contained herein are for convenience only, do not constitute a part
      of
      this Debenture and shall not be deemed to limit or affect any of the provisions
      hereof.

    

    i)  Assumption. 
      Any successor to the Company or any surviving entity in a Fundamental
      Transaction shall (i) assume, prior to such Fundamental Transaction, all of
      the
      obligations of the Company under this Debenture and the other Transaction
      Documents pursuant to written agreements in form and substance satisfactory
      to
      the Holder (such approval not to be unreasonably withheld or delayed) and (ii)
      issue to the Holder a new debenture of such successor entity evidenced by a
      written instrument substantially similar in form and substance to this
      Debenture, including, without limitation, having a principal amount and interest
      rate equal to the principal amount and the interest rate of this Debenture
      and
      having similar ranking to this Debenture, which shall be satisfactory to the
      Holder (any such approval not to be unreasonably withheld or delayed).  The
      provisions of this Section 9(i) shall apply similarly and equally to successive
      Fundamental Transactions and shall be applied without regard to any limitations
      of this Debenture.

    

    j)  Secured
      Obligation.
      The
      obligations of the Company under this Debenture are secured by all assets of
      the
      Company and certain of the Subsidiaries pursuant to the Security Agreement,
      dated as of January 17, 2007, between the Company, certain of the Subsidiaries
      of the Company and the Secured Parties (as defined therein).

    

    *********************

    
      
        
        

      

      
        27

        
          

        

      

       

    

    IN
      WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
      by a
      duly authorized officer as of the date first above indicated.

     

    
      	 	 	 
	 	
              SOLOMON
                TECHNOLOGIES, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:

              Title:

            

    

    
      
        
        

      

      
        28

        
          

        

      

       

    

    ANNEX
      A

    

    NOTICE
      OF CONVERSION

    

    The
      undersigned hereby elects to convert principal under the Variable Rate
      Self-Liquidating Senior Secured Convertible Debenture due March __, 2008 of
      Solomon Technologies, Inc., a Delaware corporation (the “Company”),
      into
      shares of common stock, par value $0.001 per share (the “Common
      Stock”),
      of
      the Company according to the conditions hereof, as of the date written below.
      If
      shares of Common Stock are to be issued in the name of a person other than
      the
      undersigned, the undersigned will pay all transfer taxes payable with respect
      thereto and is delivering herewith such certificates and opinions as reasonably
      requested by the Company in accordance therewith. No fee will be charged to
      the
      holder for any conversion, except for such transfer taxes, if any.

    

    By
      the
      delivery of this Notice of Conversion the undersigned represents and warrants
      to
      the Company that its ownership of the Common Stock does not exceed the amounts
      specified under Section 4 of this Debenture, as determined in accordance with
      Section 13(d) of the Exchange Act.

    

    The
      undersigned agrees to comply with the prospectus delivery requirements under
      the
      applicable securities laws in connection with any transfer of the aforesaid
      shares of Common Stock. 

    

    Conversion
      calculations:   

    Date
      to
      Effect Conversion:

    

    Principal
      Amount of Debenture to be Converted:

    

    Payment
      of Interest in Common Stock __ yes __ no

    If
      yes,
      $_____ of Interest Accrued on Account of Conversion at Issue.

     

    Number
      of
      shares of Common Stock to be issued:

     

    Signature:

     

    Name:

     

    Address:

    

    
      
        
        

      

      
        29

        
          

        

      

       

    

    Schedule
      1

    

    CONVERSION
      SCHEDULE

    

    The
      Variable Rate Self-Liquidating Senior Secured Convertible Debentures due on
      March __, 2008 in the aggregate principal amount of $______ are issued by
      Solomon Technologies, Inc. This Conversion Schedule reflects conversions made
      under Section 4 of the above referenced Debenture.

    

    Dated:
      

    

    
      	
               

              Date
                of Conversion

              (or
                for first entry, Original Issue Date)

            	 	
               

              Amount
                of Conversion

            	 	
               

              Aggregate
                Principal Amount Remaining Subsequent to Conversion

              (or
                original Principal Amount)

            	 	
               

              Company
                Attest

            
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	
               

            	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

    

     

    
      
        
        

      

      
        30

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