Document:

Spartan Stores, Inc. Exhibit 10.2 to Form 8-K/A - 06/14/05

Exhibit 10.2

	
Grantee:  ___________________________
	 	
Grant Date:  May 11, 2005

	 	 	 
	
Number of Shares:  __________
	 	 

Dear ___________________:

	 	
Re:
	
Restricted Stock Award

                    I am pleased to inform you that Spartan has granted to you the number of restricted shares of Spartan's Common Stock described above under the Spartan Stores, Inc. 2001 Stock Incentive Plan.  By accepting this grant, you agree that the restricted stock is subject to the terms and conditions of this letter and the Plan (which are incorporated into this letter by reference).  If there is any conflict between the terms of the Plan and this letter, the terms of the Plan will control.

                    Restricted Stock Grant. Spartan grants to you the number of shares of Spartan Common Stock set forth above, all of which are subject to restrictions imposed under this letter and the Plan (the "Restricted Shares").

                    Transferability.  Until the restrictions lapse as set forth below, the Plan provides that the Restricted Shares are generally not transferable by you except by will or according to the laws of descent and distribution, and further provides that all rights with respect to the Restricted Shares are exercisable during your lifetime only by you, your guardian, or your legal representative.

                    Lapsing of Restrictions.  Except as otherwise provided in this letter, the restrictions imposed on the Restricted Shares shall lapse as follows:  (1) restrictions on 20% (rounded to the nearest whole share) of the Restricted Shares shall lapse one year from the date of this letter; (2) restrictions on an additional 20% (rounded to the nearest whole share) of the Restricted Shares shall lapse two years from the date of this letter; (3) restrictions on an additional 20% (rounded to the nearest whole share) of the Restricted Shares shall lapse three years from the date of this letter; (4) restrictions on an additional 20% (rounded to the nearest whole share) of the Restricted Shares shall lapse four years from the date of this letter; and (5) restrictions on the remaining 20% of the Restricted Shares shall lapse five years from the date of this letter.  The periods during which Restricted Shares are subject to restrictions imposed by the Plan and under this letter are referred to in this letter as "Restricted Periods."

                    Termination of Employment.  The forfeiture, vesting or lapsing, as the case may be, of the Restricted Shares shall occur at the times provided in the Plan after your death, retirement or disability, or the termination of your employment with Spartan or its subsidiaries, or if you enter into Competition (as defined in the Plan) with Spartan.

                    Shareholder Rights.  During the Restricted Period(s), you shall have all voting, dividend, liquidation, and other rights with respect to the Restricted Shares held of record by you

as if you held unrestricted Common Stock; provided, however, that the unvested portion of any Restricted Shares award shall be subject to any restrictions on transferability or risks of forfeiture imposed pursuant to this letter or the Plan.  Any noncash dividends or distributions paid with respect to unvested Restricted Shares shall be subject to the same restrictions as those relating to the Restricted Shares awarded under this letter agreement.  After the restrictions applicable to the Restricted Shares lapse, you shall have all shareholder rights, including the right to transfer the
shares, subject to such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.

                    Certifications.  You represent and warrant that you are acquiring the Restricted Shares for your own account and investment and without any intent to resell or distribute the Restricted Shares.  You shall not resell or distribute the Restricted Shares after any Restricted Period except in compliance with such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.

                    Binding Effect; Amendment.  This letter agreement and the Plan shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, successors and permitted assigns.  This letter agreement shall not be modified except in a writing executed by you and Spartan.

	 	
Very truly yours,

	 	 
	 	 
	 	 
	 	
Craig C. Sturken

	 	
Chairman, President & CEO

-2-Spartan Stores, Inc. Exhibit 10.3 to Form 8-K/A - 06/14/05

Exhibit 10.3

	
Grantee:  ___________________________
	 	
Grant Date:  May 11, 2005

	
Number of Shares:  __________
	 	 

Dear Member of the Board of Directors:

	 	
Re:
	
Restricted Stock Award

                    I am pleased to inform you that Spartan has granted to you the number of restricted shares of Spartan's Common Stock described above under the Spartan Stores, Inc. 2001 Stock Incentive Plan.  By accepting this grant, you agree that the restricted stock is subject to the terms and conditions of this letter and the Plan (which are incorporated into this letter by reference).  If there is any conflict between the terms of the Plan and this letter, the terms of the Plan will control.

                    Restricted Stock Grant.  Spartan grants to you the number of shares of Spartan Common Stock set forth above, all of which are subject to restrictions imposed under this letter and the Plan (the "Restricted Shares").

                    Transferability.  Until the restrictions lapse as set forth below, the Plan provides that the Restricted Shares are generally not transferable by you except by will or according to the laws of descent and distribution, and further provides that all rights with respect to the Restricted Shares are exercisable during your lifetime only by you, your guardian, or your legal representative.

                    Lapsing of Restrictions.  Except as otherwise provided in this letter, the restrictions imposed on the Restricted Shares shall lapse on the earlier of (i) your retirement as a director of Spartan, (ii) your death or Disability, or (iii) May 11, 2008.  For purposes of this letter, you would be deemed to be "disabled" if, by reason of accident, physical illness or mental illness, you were unable to fulfill your normal responsibilities as a director of Spartan for a continuous period of six months.  If you are removed as a director, the restrictions imposed on the Restricted Shares will not lapse and you shall have no further rights to the Restricted Shares.  The lapsing of the restrictions imposed on the Restricted Shares shall occur at the times provided in the Plan if you enter into Competition (as defined in the Plan) with Spartan.  The period during which Restricted Shares are subject to restrictions imposed by the Plan and under this letter are referred to in this letter as "Restricted Periods."

                    Shareholder Rights.  During the Restricted Period(s), you shall have all voting, dividend, liquidation, and other rights with respect to the Restricted Shares held of record by you as if you held unrestricted Common Stock; provided, however, that the unvested portion of any Restricted Shares award shall be subject to any restrictions on transferability or risks of forfeiture imposed pursuant to this letter or the Plan.  Any noncash dividends or distributions paid with respect to unvested Restricted Shares shall be subject to the same restrictions as those relating to the Restricted Shares awarded under this letter agreement.  After the restrictions applicable to the Restricted Shares lapse, you shall have all shareholder rights, including the right to transfer the

shares, subject to such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.

                    Certifications.  You represent and warrant that you are acquiring the Restricted Shares for your own account and investment and without any intent to resell or distribute the Restricted Shares.  You shall not resell or distribute the Restricted Shares after any Restricted Period except in compliance with such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.

                    Binding Effect; Amendment.  This letter agreement and the Plan shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, successors and permitted assigns.  This letter agreement shall not be modified except in a writing executed by you and Spartan.

	 	
Very truly yours,

	 	 
	 	 
	 	 
	 	
Craig C. Sturken

	 	
Chairman, President & CEO

2EXHIBIT 10.1

           THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
              OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
                  DISPOSED OF UNLESS REGISTERED UNDER THAT ACT
                 OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

                       POWERHOUSE TECHNOLOGIES GROUP, INC.

                   FORM OF SECURED CONVERTIBLE PROMISSORY NOTE

$xx,xxx.xx                                                Dated:  June 9, 2005
(Original Principal Amount)

            FOR VALUE RECEIVED, POWERHOUSE TECHNOLOGIES GROUP, INC., a Delaware
corporation (the "Company"), hereby promises to pay to _______________________
(the "Payee"), or its registered assigns, the principal amount of xx Thousand
dollars and no cents ($xx,xxx.xx) together with interest thereon calculated from
the date hereof in accordance with the provisions of this Secured Convertible
Promissory Note (as amended, modified and supplemented from time to time, this
"Convertible Note" and together with any other Convertible Notes issued in the
Convertible Note Issuance (as defined below) or upon transfer or exchange, the
"Convertible Notes").

            Certain capitalized terms are defined in Section 10 hereof.

            1. Payment of Interest. Interest shall accrue at a rate equal to
twelve percent (12%) per annum (the "Interest Rate") beginning on the date of
this Convertible Note on the unpaid principal amount of this Convertible Note
outstanding from time to time; provided that so long as any Event of Default has
occurred and is continuing, interest shall be deemed to accrue, to the extent
permitted by law, at the rate of 14% per annum from the date on which such
Event of Default first occurs through the date on which such Event of Default
ceases to exist. Interest shall be computed on the basis of the actual number of
days elapsed and a 360-day year.

            2. Maturity Date. The entire principal amount of this Convertible
Note and all accrued but unpaid interest thereon shall be due and payable in
full in cash in immediately available funds on the earlier to occur of August
31, 2005 and the date of closing the New Financing (as defined herein) (the
"Maturity Date"). Any overdue principal and overdue interest together with any
interest thereon, shall be due and payable upon demand.

            3. Conversion. (i) Notwithstanding the above, in the event a New
Financing is consummated, the principal amount of this Convertible Note plus
accrued and unpaid interest thereon may, at the option of the Payee, be
converted into the New Financing at a conversion price that is seventy-five
percent (75%) of the price paid by investors for the securities issuable by the
Company in the New Financing. The Company shall give the Payee not less than
five (5) days' prior written notice of the closing of the New Financing. If the
Payee does not elect to so convert this Convertible Note, this Convertible Note
shall be due and payable in accordance with Section 2 hereof.

            (ii) Upon any conversion of this Convertible Note into the New
Financing, the number of shares of New Financing that shall be issuable shall
equal the number derived by dividing (x) the then outstanding principal amount
plus accrued and unpaid interest thereon of this Convertible Note, by (y) the
New Financing Applicable Price. The New Financing Applicable Price shall be
seventy-five percent (75%) of the price per share of Company Preferred Stock for
other securities paid by the investors to the Company in the New Financing. The
New Financing securities to be issued to the Payee upon any such conversion
shall have the same rights, preferences and privileges as the securities offered
to investors in the New Financing. The Payee, upon making such conversion, shall
be entitled to all the benefits of any agreements entered into among the Company
and the investors who purchase securities issued by the Company in the New
Financing. If the securities sold in the New Financing are sold as units
including warrants or other debt or equity securities, the Payee upon conversion
shall receive all the securities comprising the units. No fractional shares
shall be issued upon a conversion into New Financing. In lieu of any fractional
shares to which Payee would otherwise be entitled, the Company shall pay cash
equal to such fraction multiplied by the New Financing Applicable Price.

            (iii) Except as otherwise expressly provided herein, the conversion
of this Convertible Note shall be deemed to have been effected as of the close
of business on the date on which this Convertible Note has been surrendered for
conversion at the principal office of the Company. At such time as such
conversion has been effected, the rights of the holder of this Convertible Note
as the holder of such note shall cease (with respect to the amount so
converted), and the Person or Persons in whose name or names any certificate or
certificates for securities offered in the New Financing are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the securities issued in the New Financing represented thereby.

            (iv) As soon as possible after the conversion has been effected (but
in any event within three (3) Business Days), the Company shall deliver to the
converting holder a certificate or certificates representing the number of
shares of Preferred Stock (or other securities offered in the New Financing)
issuable by reason of such conversion in such name or names and such
denomination or denominations as the converting holder has specified. Upon any
conversion of a portion of the principal amount of this Convertible Note plus
accrued and unpaid interest, the Company shall as soon as possible (but in any
event within three (3) Business Days), deliver to the converting holder a new
note registered in the name of such Person or Persons as may be designated by
the Convertible Noteholder for the principal amount and accrued and unpaid
interest of this Convertible Note then remaining unpaid.

            (v) The issuance of certificates for securities offered in the New
Financing that are issuable upon conversion of this Convertible Note shall be
made without charge to the holder hereof for any issuance tax in respect thereof
or other cost incurred by the Company in connection with such conversion and the
related issuance of securities offered in the New Financing or Company Common
Stock. Upon conversion of this Convertible Note, the Company shall take all such
actions as are necessary in order to insure that the securities offered in the
New Financing issuable with respect to such conversion shall be validly issued,
fully paid and nonassessable.

            (vi) The Company shall not close its books against the transfer of
securities offered in the New Financing issuable upon conversion of this
Convertible Note in any manner which interferes with the timely conversion of
this Convertible Note. The Company shall assist and cooperate with any holder of
this Convertible Note required to make any governmental filings or obtain any
governmental approval prior to or in connection with the conversion of this
Convertible Note (including, without limitation, making any filings required to
be made by the Company).

            (vii) The Company shall at all times reserve and keep available out
of its authorized but unissued securities of the class or classes offered in the
New Financing, solely for the purpose of issuance upon conversion hereunder,
such number or amount of such securities as may be issuable upon full conversion
of this Convertible Note. All such securities which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such securities may be so issued without violation
of any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which such shares of capital stock.

            4. Board of Director Nomination Right - Secured Convertible Note
Holders. Holders of the Secured Convertible Notes, voting as a separate class,
shall have the right to nominate two members of Company's Board of Directors
(the "Secured Convertible Note Holders Directors"). The Company's Board of
Directors have the right to accept each nomination by voting according to the
By-Laws of the Company. Acceptance of each nomination will not be unreasonably
withheld by the Board of Directors. Once accepted, each nominee will vote equal
with all other Board of Directors. It is the intent of all parties that these
two nominations be made and accepted no later than two weeks from the funding of
the Secured Convertible Bridge Loan. Completion later than this date is not
deemed an event of Default.

            5. Method of Payments.

            (i) Payment. So long as the Payee or any of its nominees shall be
the holder of any Convertible Note, and notwithstanding anything contained
elsewhere in this Convertible Note to the contrary, the Company will pay all
sums for principal, interest, premiums, dividends or otherwise becoming due on
this Convertible Note held by the Payee or such nominee not later than 1:00 p.m.
New York time, on the date such payment is due, in immediately available funds,
in accordance with the payment instructions that the Payee may designate in
writing, without the presentation or surrender of such Convertible Note or the
making of any notation thereon. Any payment made after 1:00 p.m. New York time,
on a Business Day will be deemed made on the next following Business Day. If the
due date of any payment in respect of this Note would otherwise fall on a day
that is not a Business Day, such due date shall be extended to the next
succeeding Business Day, and interest shall be payable on any principal so
extended for the period of such extension. All amounts payable under this
Convertible Note shall be paid free and clear of, and without reduction by
reason of, any deduction, set-off or counterclaim. The Company will afford the
benefits of this Section to the Payee and to each other Person holding this
Convertible Note.

            (ii) Transfer and Exchange. Upon surrender of any Convertible Note
for registration of transfer or for exchange to the Company at its principal
office, the Company at its sole expense will execute and deliver in exchange
therefore a new Convertible Note or Convertible Notes, as the case may be, as
requested by the holder or transferee, which aggregate the unpaid principal
amount of such Convertible Note, registered as such holder or transferee may
request, dated so that there will be no loss of interest on the Convertible Note
and otherwise of like tenor; provided that this Convertible Note may not be
transferred by Payee to any Person other than Payee's affiliates without the
prior written consent of the Company (which consent shall not be unreasonably
withheld or delayed). The issuance of new Convertible Notes shall be made
without charge to the holder(s) of the surrendered Convertible Note for any
issuance tax in respect thereof or other cost incurred by the Company in
connection with such issuance, provided that each Convertible Noteholder shall
pay any transfer taxes associated therewith. The Company shall be entitled to
regard the registered holder of this Convertible Note as the holder of the
Convertible Note so registered for all purposes until the Company or its agent,
as applicable, is required to record a transfer of this Convertible Note on its
register.

            (iii) Replacement. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Convertible
Note and, in the case of any such loss, theft or destruction of any Convertible
Note, upon receipt of an indemnity reasonably satisfactory to the Company or, in
the case of any such mutilation, upon the surrender and cancellation of such
Convertible Note, the Company, at its expense, will execute and deliver, in lieu
thereof, a new Convertible Note of like tenor and dated the date of such lost,
stolen, destroyed or mutilated Convertible Note.

            6. Representations and Warranties of Payee. Payee represents and
warrants to Company that Payee is an "accredited investor" as defined in
Regulation D under the Securities Act of 1933, as amended, and is acquiring this
Convertible Note and any and all shares of capital stock into which this
Convertible Note is convertible solely for its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof, and has no present intention or plan to effect any
distribution thereof. The shares of capital stock issuable upon conversion
hereof will bear a legend to the following effect:

            "The securities represented by this certificate have not been
            registered under the Securities Act of 1933, as amended (the "Act"),
            or the laws of any state and may not be sold or transferred except
            in compliance with the Act and such laws."

            7. Representations and Warranties of the Company. The Company
represents and warrants to Payee that:

            (i) Organization and Qualification. The Company and each of its
subsidiaries is an entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, with power and authority to
conduct its business as it is now being conducted, to own or use its properties
and assets that it purports to own or use and, in the case of the Company, to
perform its obligations under this Convertible Note. The Company and each of its
subsidiaries is duly qualified to do business as a foreign company and is in
good standing under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, or

            (ii) Absence of Conflicts. Neither the execution, delivery and
performance of this Convertible Note by Company, nor the consummation of the
transactions contemplated hereby, nor compliance by Company with any of the
provisions hereof, will (a) violate, conflict with, or result in a breach of any
provision of, constitute a default under, or permit or result in the termination
of, acceleration of any obligation under, or creation of a lien (other than
pursuant to the Security Agreement) under any of the terms, conditions or
provisions of, (i) the certificate of incorporation, bylaws or stockholders
agreements of Company, or (ii) any note, mortgage, agreement, indenture, or
license by which Company or any of its properties or assets may be bound, or to
which Company or any of its properties or assets may be subject, or (b) violate
or conflict with any law, rule, regulation, judgment, ruling, order, writ,
injunction or decree applicable to Company or any of its properties or assets.

            (iii) Authorization of Agreements, Etc. Each of (i) the execution
and delivery by the Company of this Convertible Note, (ii) the performance by
the Company of its obligations hereunder, and (iii) the issuance, sale and
delivery by the Company of this Convertible Note has been duly authorized by
corporate action of the Company.

            (iv) Validity. This Convertible Note has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors rights generally or by
equitable principles relating to enforceability.

            (v) Capitalization. After giving effect to the transactions
contemplated by this Convertible Note, the capitalization of the Company shall
be as reflected in the Chart attached hereto as Schedule A.

            (vi) Securities Act. Assuming the accuracy of the representations of
Convertible Noteholders set forth in Section 5 hereof, neither the registration
of any security under the Securities Act of 1933, as amended, or the securities
laws of any state, nor the qualification of an indenture in respect thereof
under the Trust Indenture Act of 1939, as amended, is required in connection
with the issuance, execution and delivery of the Convertible Notes in the manner
contemplated hereunder.

            8. Covenants of the Company. The Company covenants and agrees, so
long as this Convertible Note is outstanding, as follows:

            (i) Consolidation, Merger and Sale. The Company will not (i)
consolidate or merge with or into (or permit any subsidiary to consolidate or
merge with or into) any other person, (ii) sell or otherwise dispose of (or
permit any subsidiary to sell or otherwise dispose of) a material portion of its
property or assets in one or more transactions to, any other person or entity or
enter into (or permit any subsidiary to enter into) an agreement with respect to
any of the foregoing; or (iii) sell or otherwise transfer, directly or
indirectly or enter into an agreement with respect to the sale or transfer of
any capital stock or other equity securities of the Company or any subsidiary
constituting greater than ten percent (10%) of the outstanding Common Stock of
the Company on a fully diluted basis.

            (ii) Restricted Payments. The Company will not, and will not permit
any of its subsidiaries to: (i) declare or pay any dividends on, or make any
other distribution or payment on account of, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, any equity interests of any class of
the Company or any subsidiary, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly, whether in
cash, property or in obligations of the Company or any of its subsidiaries, (ii)
other than in respect to accounts payable in the ordinary course of business,
make any payments of principal of or interest on, or retire, redeem, purchase or
otherwise acquire any indebtedness other than this Convertible Note and the
other Convertible Notes or (iii) enter into a loan agreement of any kind without
receiving the prior written consent of Convertible Noteholders representing
seventy five percent (75%) of the aggregate principal amount of all Convertible
Notes then outstanding.

            (iii) Notice of New Financing Financing. At least five (5) days
prior to the closing of any New Financing, the Company shall provide Payee with
written notice of such projected closing date, specifying the terms of the
transaction and the proposed price of the securities offered or to be offered in
the New Financing to be paid in such New Financing. The Company shall promptly
provide telephonic notice to Payee of any adjournments or rescheduling of such
projected closing date.

            (iv) Convertible Notes. If more than one Convertible Note is
outstanding, all Convertible Notes shall be on the same terms and shall be in
substantially the same form. All payments to the holder of any Convertible Note
shall be made to all holders of Convertible Notes, pro rata, based on the
aggregate principal amount plus accrued but unpaid interest outstanding on such
Convertible Notes at such time.

            (v) Within ten (10) business days of the issuance to the Payee of
this Convertible Note, the Company shall obtain all waivers and consents as
shall be necessary, or as may be acceptable to the Payee, either to make Payee a
party to, or to grant to Payee equal rights and interests with the Secured Party
in the Collateral under, that certain Series A Senior Preferred Equity Security
Agreement between the Company, the Agent and the Secured Party dated April 23,
2004; (the "Security Agreement"). If fewer than all holders of Series A
Preferred Stock who constitute the Secured Party grant such consents and
waivers, the Payee shall have the right to accept such fewer consents and
waivers and in such event the Company shall not thereafter pledge or otherwise
encumber the Collateral (except to the extent of the Security Agreement).
Defined terms in this paragraph have the same meanings as such terms have in the
Security Agreement.

            (vi) Within ten (10) business days of the issuance to the Payee of
this Convertible Note, the Company shall obtain consents to the extent
necessary, or as may be acceptable to the Payee, to authorize the Company's
issuance of this Convertible Note and to waive the Keep Even right set forth in
Section 5A of the Company's Certificate of Designations, Preferences and Rights
of its Series A Senior Preferred Stock (the "Certificate of Designations").

            (vii) Within ten (10) business days of the issuance to the Payee of
this Convertible Note, the Company shall enter into a Registration Rights
Agreement with Payee substantially in the form of the Company's Registration
Rights Agreement dated April 23, 2004, with the holders of the Company's Series
A Senior Preferred Stock and providing that Payee shall have unlimited piggyback
registration rights and one demand registration rights beginning one hundred
eighty (180) days after the issuance of this Convertible Note.

            (viii) Immediately upon consummation of the New Financing, the
Company shall issue warrants ("Payee Warrants") to the Payee in an amount equal
to one hundred fifty percent (150%) of the proportional warrant coverage
received by investors ("Investor Warrants") in the New Financing. The Payee
Warrants shall be in the same form as the Investor Warrants and shall contain
the same terms as the Investor Warrants, including an exercise price that is the
same as the exercise price set forth in the Investor Warrant. The Payee Warrants
shall be in addition to any Investor Warrants issued to the Payee upon
conversion of this Convertible Note in accordance with Section 3(c) hereof.

            (ix) Upon any conversion of this Convertible Note into the New
Financing, the number of shares of New Financing that shall be issuable shall
equal the number derived by dividing (x) the then outstanding principal amount
plus accrued and unpaid interest thereon of this Convertible Note, by (y) the
New Financing Applicable Price. The New Financing Applicable Price shall be
seventy-five percent (75%) of the price per share of Company Preferred Stock for
other securities paid by the investors to the Company in the New Financing.

            (x) This Convertible Note shall have the same anti-dilution
provisions as are set forth in Section 4 of the Certificate of Designations,
except that the initial "Conversion Price" for this Convertible Note shall be
that amount that is seventy-five percent (75%) of the price of the securities
offered in the New Financing.

            (xi) (A) The Company and the Payee agree that, as promptly as
practicable, and in no event later than June 24, 2005, the following actions
shall be taken and completed:

                        (1) the Board of Directors of the Company shall amend
                  the Company's By-laws to increase the size of the Board to
                  create the necessary vacancies that will permit it to elect
                  two persons nominated for election to the Board as Directors
                  of the Company by the Payee, in accordance with the By-laws;

                        (2) the Payee shall provide the Company's Board of
                  Directors with the name of the two persons Payee nominates for
                  election to the Board, together with any other identifying
                  information the Board may reasonably request in connection
                  with the provisions hereof; and

                        (3) the Board of Directors shall, upon receipt of such
                  identifying information, immediately elect such nominees to
                  the vacancies so created in connection herewith, each to serve
                  for a term until the earlier to occur of the next annual
                  meeting of stockholders of the Company or until such nominee's
                  successor shall be elected by the stockholders and qualified;

                  (B) Unless this Note is no longer outstanding at the time of
            the next annual meeting of the stockholders of the Company, the
            Board shall nominate for election as Directors the nominees
            designated by the Payee in accordance with the provisions hereof, to
            continue to serve as Directors in accordance with the Certificate of
            Incorporation and the By-laws of the Company as then in effect and
            shall use its best efforts to cause the election of such nominees to
            such positions; and

                  (C) Should either or both of the persons so nominated by the
            Payee for election as a Director in accordance with the provisions
            hereof, cease or be or become unable to serve as a Director at any
            time, the Payee shall have the right to nominate a person to serve
            in the place and stead of such initial Director nominee.

            9. Events of Default. If any of the following events takes place
before the Maturity Date (each, an "Event of Default"), Payee at its option may
declare all principal and accrued and unpaid interest thereon and all other
amounts payable under this Convertible Note immediately due and payable;
provided, however, that this Convertible Note shall automatically become due and
payable without any declaration in the case of an Event of Default specified in
clause (iii) or (v), below:

            (i) A receiver, liquidator or trustee of Company or any substantial
      part of Company's assets or properties is appointed by a court order; or

            (ii) Company is adjudicated bankrupt or insolvent; or

            (iii) Any of Company's property is sequestered by or in consequence
      of a court order and such order remains in effect for more than 30 days;
      or

            (iv) Company files a petition in voluntary bankruptcy or requests
      reorganization under any provision of any bankruptcy, reorganization or
      insolvency law or consents to the filing of any petition against it under
      such law, or

            (v) Any petition against Company is filed under bankruptcy,
      receivership or insolvency law; or

            (vi) Company makes a formal or informal general assignment for the
      benefit of its creditors, or admits in writing its inability to pay debts
      generally when they become due, or consents to the appointment of a
      receiver or liquidator of Company or of all or any part of its property;
      or

            (vii) An attachment or execution is levied against any substantial
      part of Company's assets that is not released within 30 days; or

            (viii) Company dissolves, liquidates or ceases business activity, or
      transfers any major portion of its assets other than in the ordinary
      course of business; or

            (ix) Company breaches any covenant or agreement on its part
      contained in this Convertible Note or the Security Agreement as such is in
      effect in the date hereof; or

            (x) Any material inaccuracy or untruthfulness of any representation
      or warranty of the Company set forth in this Convertible Note or the
      Security Agreement as such is in effect in the date hereof.

            10. Definitions.

            "Business Day" means a day (other than a Saturday or Sunday) on
which banks generally are open in New York, New York for the conduct of
substantially all of their activities.

            "Convertible Noteholder" with respect to any Convertible Note, means
at any time each Person then the record owner hereof and "Convertible
Noteholders" means all of such Convertible Noteholders collectively.

            "Convertible Note Issuance" shall mean the Secured Convertible
Promissory Notes containing the terms hereof and issued by the Company to the
Payee.

            "New Financing" means the issuance of securities of the Company to
one or more investors for cash following the date of issuance of this
Convertible Note.

            "Person" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a limited liability company, a trust or other entity.

            "Security Agreement" has the meaning set forth in Section 7 hereof.

            11. Expenses of Enforcement, etc. The Company agrees to pay all fees
and expenses incurred by the Payee in connection with the negotiation, execution
and delivery of this Convertible Note (including the reasonable fees of counsel
to the placement agent for the Payees). The Company indemnifies the Payee and
its directors, managers, affiliates, partners, members, officers, employees and
agents against, and agrees to hold the Payee and each such person and/or entity
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees and expenses, incurred by or
asserted against the Payee or any such person and/or entity arising out of, in
any way connected with, or as a result of (i) the consummation of the loan
evidenced by this Convertible Note and the use of the proceeds thereof or (ii)
any claim, litigation, investigation or proceedings relating to any of the
foregoing, whether or not the Payee or any such person and/or entity is a party
thereto other than any loss, claim, damage, liability or related expense
incurred or asserted against the payee or any such person on account of the
payee's or such person's gross negligence or willful misconduct.

            12. Security Agreement. This Convertible Note shall be secured by
the Security Agreement in accordance with the provisions of Section 7 hereof.
Upon effectuation of Section 7 hereof, Payee shall be entitled to all rights of
the "Secured Party" as defined in the Security Agreement.

            13. Amendment and Waiver. The provisions of this Convertible Note
may not be modified, amended or waived, and the Company may not take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, without the written consent of the Payee.

            14. Remedies Cumulative. No remedy herein conferred upon the Payee
is intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.

            15. Remedies Not Waived. No course of dealing between the Company
and the Payee or any delay on the part of the Payee in exercising any rights
hereunder shall operate as a waiver of any right of the Payee.

            16. Assignments. The Payee may assign, participate, transfer or
otherwise convey this Convertible Note and any of its rights or obligations
hereunder or interest herein to any affiliate of Payee and to any other Person
that the Company consents to (such consent not to be unreasonably withheld or
delayed), and this Convertible Note shall inure to the benefit of the Payee's
successors and assigns. The Company shall not assign or delegate this
Convertible Note or any of its liabilities or obligations hereunder.

            17. Headings. The headings of the sections and paragraphs of this
Convertible Note are inserted for convenience only and do not constitute a part
of this Convertible Note.

            18. Severability. If any provision of this Convertible Note is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Convertible Note will remain in full force and effect. Any
provision of this Convertible Note held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.

            19. Cancellation. After all principal, premiums (if any) and accrued
interest at any time owed on this Convertible Note have been paid in full, or
this Convertible Note has been converted this Convertible Note will be
surrendered to the Company for cancellation and will not be reissued.

            20. Maximum Legal Rate. If at any time an interest rate applicable
hereunder exceeds the maximum rate permitted by law, such rate shall be reduced
to the maximum rate so permitted by law.

            21. Place of Payment and Notices. Subject to Section 4 a above,
payments of principal and interest are to be delivered to the Convertible
Noteholder of this Convertible Note at the following address:
______________________________________________, or at such other address as such
Convertible Noteholder has specified by prior written notice to the Company. No
notice shall be deemed to have been delivered until the first Business Day
following actual receipt thereof at the foregoing address.

            22. WAIVER OF JURY TRIAL. THE PAYEE AND THE COMPANY EACH HEREBY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
CONVERTIBLE NOTE AND/OR THE TRANSACTIONS CONTEMPLATED HEREUNDER.

            23. Submission to Jurisdiction. Any legal action or proceeding with
respect to this Convertible Note may be brought in the courts of the State of
New York or of the United States of America sitting in New York County, and, by
execution and delivery of this Convertible Note, the Company hereby accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts.

            (i) The Company hereby irrevocably waives, in connection with any
such action or proceeding, any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which they may now or hereafter have to the bringing of any such
action or proceeding in such respective jurisdictions.

            (ii) Nothing herein shall affect the right of the Payee to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Company in any other jurisdiction.

            24. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS CONVERTIBLE NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR
PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE
OF NEW YORK.

<PAGE>

            IN WITNESS WHEREOF, the parties have executed and the Company has
delivered this Secured Convertible Promissory Note on the date first written
above.

                                       COMPANY: POWERHOUSE
                                          TECHNOLOGIES GROUP, INC.

                                       By:
                                          --------------------------------------
                                          Name:   Jay Elliot
                                          Title:  Chief Executive Officer

                                       PAYEE:

                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:

<PAGE>

                                   SCHEDULE A

            POWERHOUSE TECHNOLOGIES POST-CLOSING CAPITALIZATION TABLE

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