Document:

EMPLOYMENT
      AGREEMENT

     

    Employment
      Agreement (the “Agreement”), dated as of March 1, 2006, by and between AeroGrow
      International, Inc., a Nevada corporation (the “Company”), and Mitchell B. Rubin
      (“Employee”). 

     

    In
      consideration of the promises and conditions contained herein, the parties
      hereto agree as follows: 

     

    Section 1.
      Employment.
      The
      Company hereby agrees to employ Employee, and Employee hereby accepts employment
      by the Company effective as of the date of this Agreement (the “Commencement
      Date”), upon the terms and subject to the conditions hereinafter set forth.
 

     

    Section 2.
      Duties. Employee
      shall serve as the Chief Financial Officer of the Company. Employee will perform
      the duties attendant to his executive position with the Company under the
      direction of the Chief Executive Officer and the Board of Directors of the
      Company. Employee will perform his duties faithfully and to the reasonable
      best
      of his ability and will devote his full business efforts and time to the Company
      and shall comply with all reasonable and lawful existing and future regulations
      applicable to senior management level employees of the Company and to the
      Company's business. During
      the Term, Employee shall devote his full business time, skill and energies
      to
      the business of the Company; provided, however, that Employee may, during the
      initial four (4) months from the Commencement Date devote a limited amount
      of
      time to other business activities, so long as (a) such activities are not
      competitive with the Company's business, (b) Executive’s so doing does not
      interfere with his performance of his duties to the Company and (c) such
      activities do not exceed 10 hours per week and are not conducted weekdays during
      the hours of 9:00am to 6:00pm. Further, on or before August 31, 2006, if this
      Agreement has not otherwise been terminated pursuant to Section 6 herein,
      Employee agrees to relocate to Boulder, Colorado area.

     

      Section 3.
      Term.
      Unless
      Employee's employment hereunder is terminated earlier pursuant to Section 6
      of
      this Agreement, Employee's employment hereunder shall begin on March 1 and
      shall
      expire on the last day of the twenty fourth (24th)
      month
      (calculated from the first day of the month following execution of this
      agreement) (the initial “Contract Term”), provided that upon the expiration of
      the initial Contract Term, the Employee's employment hereunder shall continue
      for additional consecutive extension terms of one (1) year each until either
      party gives notice of termination to the other at least one hundred and eighty
      (180) days prior to end of the Contract Term. The initial Contract Term and
      any
      extension is referred to as the Contract Term. 

     

     Section 4.
      Compensation and Benefits. In
      consideration for the services of the Employee hereunder, the Company will
      compensate Employee as follows: 

     

    (a)
      Base
      Salary.
      Beginning on the Commencement Date, Employee shall be entitled to receive a
      base
      salary of $200,000 per annum. Such Base salary shall be payable in periodic
      installments in accordance with the terms of the Company's regular payroll
      practices in effect from the time during the term of this Agreement and subject
      to applicable tax withholding., but in no event less frequently than once each
      month.

     

    (b)
      Bonus.
      Employee
      shall receive an annual cash bonus in an amount not less than 1.5% of the EBITDA
      of the Company as determined by the Company’s annual financial statements and
      pro rated for any portion of such annual period covered under this Agreement.
      Such bonus shall be payable not later than one hundred and twenty (120) days
      after the end of the each of the Company’s fiscal years covered under this
      agreement. Employee acknowledges the foregoing may be modified by the Board
      of
      Directors subsequent to the initial Contract Term, however, in such event;
      the
      Bonus herein shall in no event be less favorable than that granted to the
      Company’s senior executives.

     

    
      
        
        

      

      
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    (c)
      Benefits.
      Employee
      shall be entitled to participate in and receive benefits under any and all
      employee benefit plans and programs which are from time to time generally made
      available to the executive employees of the Company, subject to approval and
      grant by the Governance Committee of the Board with respect to programs calling
      for such approvals or grants and consistent with plan terms. 

     

    (d)
      Equity
      Compensation.
      Employee shall be entitled to participate in and receive benefits under the
      2005
      Equity Compensation Plan, and any successor plan providing for compensation
      in
      the form of stock, stock options and other equity-related compensation provided
      by the Company to its employees. The initial grant of the Stock Options to
      be
      granted to Employee pursuant to the Company’s 2005 Equity Compensation Plan
      shall not be less than 125,000 options to purchase the common stock of the
      Company at an exercise price of not greater than $5.00. The options shall;
      (i)
      vest pursuant to terms no less than a minimum of 50% of the amount of the grant
      per each twelve month period from the date of grant; (ii) shall not expire
      in
      less than five (5) years from the date of grant; (iii) shall be subject to
      other
      standard terms and conditions under the 2005 Equity Compensation Plan, and;
      (iv)
      shall have other terms and conditions no less favorable than that granted to
      other senior executives of the Company. Employee agrees that the foregoing
      options shall be subject to the lockup provisions as required by the Company’s
      investment bankers in conjunction with a private placement offering conducted
      during February, 2006.

     

    Section 5.
      Expenses.
      It is
      acknowledged that Employee, in connection with the services to be performed
      by
      him pursuant to the terms of this Agreement, will be required to make payments
      for travel, entertainment of business associates and similar expenses. The
      Company will reimburse Employee for all reasonable expenses of types authorized
      by the Company and incurred by Employee in the performance of his duties
      hereunder within fifteen days from date Employee submits a request for such
      reimbursement. Employee will comply with such budget limitations and approval
      and reporting requirements with respect to expenses as the Company may establish
      from time to time. 

     

    For
      a
      period not to exceed the initial six months of the Term, the Company will pay
      all reasonable living and travel expenses of Employee while Employee is in
      Boulder inclusive of weekly airfare, car rental, hotel (or furnished apartment)
      and food (not to exceed $25/day). In the event the Employee relocates to
      the Boulder area sooner than expiration of this initial six month period, which
      shall be defined as Employee purchasing or leasing a dwelling in the Boulder
      area larger than a one bedroom apartment, the Company’s obligation shall end.
      Company shall also pay all of Employee’s expenses related to such relocation up
      to a maximum of $12,000. 

    

    Section 6.
      Termination. 

     

    (a)
      For
      Cause by Company.
      The
      Company may terminate the Employee's employment under this Agreement at any
      time
      for Cause. “Cause” is defined as (i) a material act of dishonesty by
      Executive in connection with his responsibilities as an Employee,
      (ii) conviction of, or plea of nolo contendere to, a felony,
      (iii) gross misconduct, or (iv)  continued substantial violation of
      his employment duties after Employee has received a written demand for
      performance from the Company which specifically sets forth the factual basis
      for
      the Company’s belief that Employee has not substantially performed his
      duties.

    

    (b)
      Without
      Cause by Company. The
      Company may terminate the Employee's employment under this Agreement at any
      time
      without Cause. If the Company breaches any term of this Agreement and fails
      to
      cure such breach within thirty (30) days of notice of such breach from the
      Employee, and if Employee terminates his employment with the Company within
      thirty (30) days after the period for the cure of the breach by the Company
      expires, the Company shall be deemed to have terminated the Employee's
      employment hereunder without Cause. Material breach, as defined herein shall
      include, without limitation, (a) any failure by the Company to comply with
      Section 4 hereof in any material way; (b) the relocation of the principal place
      where the Employee regularly performs services for the Company outside of the
      Denver, Colorado Metropolitan Area; (e) any misrepresentation by Company to
      any
      government or other violation of law. If the Company terminates the Employee’s
      employment in accordance with this paragraph, the Employee shall be entitled
      to;
      (i) continuation in payment of his Base Salary until the end of the sixth
      (6th
      )
      month
      following termination, at the rate in effect immediately before the termination;
      (ii) the payment by the Company of medical benefits payable to employee until
      the end of the sixth (6th
      )
      month
      following termination, and; (iii) the pro rata portion the bonus payable
      pursuant to Section 4(b) as determined by the EBITDA as of the nearest quarter
      end financial statements of the Company. The foregoing is provided that the
      Employee honors the restrictive covenants provided in this Agreement and
      executes a release of all claims arising from his employment by the Company,
      in
      such form as may then be used by the Company respecting termination of
      employees. 

     

    
      
        
        

      

      
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    (c)
      Without
      Cause by Employee. The
      Employee may terminate the Employee's employment under this Agreement at any
      time after the initial Contract Term without Cause upon giving at
      least ninety (90) day’s advance written notice. If the Employee terminates
      the Employee’s employment in accordance with this paragraph, the Employee shall
      be entitled to continuation in payment of his Base Salary until the end of
      the
      month following said notice. Notwithstanding the foregoing, Employee may
      terminate the Employee's employment under this Agreement during the initial
      six
      (6) months of the Contract Term without cause upon giving at least sixty (60)
      day’s advance written notice.

     

    (d)
      Change
      of Control.  Upon
      the
      occurrence of a Change of Control, Employee may, at Employee’s option, terminate
      Employee's employment under this Agreement after (90) ninety days of the
      occurrence of such Change of Control upon giving at least one hundred and eighty
      days (180) day’s advance written notice. For
      purposes of this Agreement, a "change of control" shall mean the appointment
      by
      the Board of Directors of a new Chief Executive Officer. If the Employee elects
      to terminate the Employee’s employment in accordance with this section such
      termination shall be deemed as a termination without cause by Employee pursuant
      to Section 6 (c) herein.

     

    (e)
      Disability.
      If
      Employee becomes permanently and totally disabled, this Agreement shall be
      terminated. Employee shall be deemed permanently and totally disabled if he
      is
      unable to engage in the activities required by this Agreement by reason of
      any
      medically determinable physical or mental impairment, as confirmed by three
      independent physicians, which can be expected to result in death or which has
      lasted or can be expected to last for a continuous period of not less than
      twelve (12) months. Upon termination due to disability, any portion of any
      of
      the Options granted to the Employee that is not then vested shall vest and
      all
      Options shall be exercisable by Employee until ninety (90) days after the
      termination. Nothing herein shall limit the entitlement of the Employee to
      any
      other rights or benefits then available to the Employee under any plan or
      program of the Company or under applicable law. 

     

      (f)
      Death.
      If
      Employee dies during the Employment Term, the Employment shall be terminated
      on
      the last day of the calendar month of his death and any portion of any of the
      Options granted to the Employee that is not then vested shall become vested
      and
      all Options shall be exercisable by the designated beneficiary, as provided
      in
      Section 6.8 below, the estate or personal representative of Employee until
      ninety (90) days after death. This Section 4.9 will not limit the entitlement
      of
      the Employee's estate, personal representative or beneficiaries to any death
      or
      other benefits then available to the Employee under any life insurance, stock
      ownership, stock options, or other benefit plan or policy that is maintained
      by
      the Company for the Employee's benefit. 

     

    
      
        
        

      

      
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    (e)
      Non-Renewal
      Is Not Termination.
      The
      notice by either party not to renew the Contract Term for another year is not
      a
      termination under this Agreement.

     

    Section
      7.
      Restrictive Covenants and Representations. 

     

    (a) Confidential
      Data. The
      Employee will hold in a fiduciary capacity and will not reveal, communicate
      or
      divulge during the period of his employment by the Company or thereafter, any
      information, knowledge or data to any person, firm or corporation other than
      the
      Company or persons, firms or corporations designated by the Company, which
      relates to the names of the customers, finances, technical data concerning
      products or services, or any other secret or confidential information, knowledge
      or data of the Company or of any firm owned by the Company, which was learned
      through or as a result of employment by the Company.

     

    (b)
      Covenant
      Not to Compete.
      In
      consideration for his employment hereunder, during the term of this agreement,
      and for twenty-four (24) months after the termination of this agreement,
      whichever is later, the Employee shall not, within the United States, either
      directly or indirectly, own, have a proprietary interest of any kind in, be
      employed by, or serve as a consultant to or in any other capacity for any firm
      which is in the primary business of providing aeroponics products or businesses,
      or which is otherwise engaged in a business that is competitive with that
      conducted by the Company. Notwithstanding the foregoing, the Employee may invest
      in the securities of any corporation whose shares are listed on a national
      securities exchange or registered under the Securities Exchange Act of
      1934.

     

    (c)
      Ownership
      of Inventions.
      There
      shall become the exclusive property of the Company, its successors and assigns,
      every invention and improvement conceived, invented or developed by the Employee
      during the term of his employment hereunder relating to products or services
      to
      be manufactured, sold, used or in the process of development by the Company
      or
      by any parent or affiliate of the Company during such period of employment,
      or
      which may be sold or used in competition with any such product. Employee agrees
      to execute such assignments, instruments or other documents as the Company
      or
      its counsel may request to implement this paragraph.

     

    (d)
      Non-Solicitation of Employees.
      The
      Employee and any entity controlled by him or with which he is associated (as
      the
      terms "control" and "associate" are defined in the Exchange Act) shall not,
      during the Contract Term and for a term of eighteen (18) months thereafter,
      directly or indirectly solicit, interfere with, offer to hire or induce any
      person who is or was an officer or employee of the Company or any affiliate
      (as
      the term "affiliate" is defined in the Exchange Act) (other than secretarial
      personnel) to discontinue his or her relationship with the Company or an
      affiliate of the Company, in order to accept employment by, or enter into a
      business relationship with, any other entity or person. (These acts are
      hereinafter referred to as the "prohibited acts of solicitation.") 

     

    (e)
      Return
      of Property.
      Upon
      termination of employment, and at the request of the Company, the Employee
      agrees to promptly deliver to the Company all Company or affiliate memoranda,
      notes, records, reports, manuals, drawings, designs, computer files in any
      media, and any other documents (including extracts and copies thereof) relating
      to the Company or its affiliates, and all other property of the Company. Upon
      termination, the Executive shall cease to use all such materials and information
      set forth under this Section 7(a).

     

    (f)
      Representations.
      The
      Employee represents and warrants to the Company that he has full power and
      authority to enter into this Agreement and perform his duties hereunder, and
      that he has no outstanding agreement, whether oral or written or any obligation
      that is or may be in conflict with any of the provisions of this Agreement
      or
      that would preclude Employee from complying with the provisions of this
      Agreement and the performance of his duties shall not result in a breach of,
      or
      constitute a default under, any agreement , whether oral or written, including,
      without limitation, any restrictive covenant or confidentiality agreement,
      to
      which he is a party or by which he may be bound. Employee further represents
      and
      warrants that he has not misappropriated any confidential information and/or
      trade secrets of any third party that he intends to use in the performance
      of
      his duties under this Agreement. Company and the individual signing this
      Agreement on behalf of Company each represent and warrant that they each have
      full power and authority to enter into this Agreement, that there are no
      agreements whether oral or written, or legal requirements, that conflict with
      any provisions of this Agreement, and that the performance of this Agreement
      shall not result in a breach of, or constitute a material default, under, any
      such agreement or legal requirement.

     

    Section
      8. Indemnities

     

    (a)
      Employee.
      Employee shall indemnify and hold harmless the Company from and against any
      losses, claims, damages or liabilities which arise out of any breach of
      Employee's representations and warranties set forth in Section 7 (f) of this
      Agreement as determined in a court of law and made part of a final judgment
      after exhaustion of, or the time has lapsed for, any appeal thereof.

     

    (b)
      Company.
      Company
      shall defend, indemnify and hold Employee harmless from and against any losses,
      claims, damages or liabilities which arise out of any: (a) action or inaction
      taken or not taken by him in the ordinary course of Company's business or as
      directed by the Chairman, CEO or the Board unless a court of law determines
      that
      Employee has breached the Employee's representations and warranties set forth
      in
      Section 7(f) of this Agreement as part of a final judgment after exhaustion
      of,
      or the time has lapsed for, any appeal thereof. The Company agrees to obtain
      and
      maintain Directors and Officers Liability Insurance during the Contract Term
      with coverage of not less than $1.5 million.

     

    Section 9.
      General. 

     

    (a)
      Notices.
      Except
      as provided in Section 8(a) hereof, all notices and other communications
      hereunder will be in writing or by written telecommunication, and will be deemed
      to have been duly given if delivered personally or if mailed by certified mail,
      return receipt requested, or by written telecommunication, to the relevant
      address set forth below, or to such other address as the recipient of such
      notice or communication will have specified to the other party hereto in
      accordance with this Section ll(a): 

     

    If
      to
      Employer, to: 

     

    AeroGrow
      International, Inc. 

    900
      28th
      Street, Suite 201

    Boulder,
      Co 80303

    

      If
      to
      Employee, to:

     

    Mitchell
      B Rubin

    1513
      Oberlin Ave 

    Thousand
      Oaks, California 91360

     

    (b)
      Withholding;
      No Offset.
      All
      payments required to be made by Employer under this Agreement to Employee will
      be subject to the withholding of such amounts, if any, relating to federal,
      state and local taxes as may be required by law. No payment under this Agreement
      will be subject to offset or reduction attributable to any amount Employee
      may
      owe to the Company or any other person. 

     

    
      
        
        

      

      
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    (c)
      Equitable
      Remedies.
      Each
      of
      the parties hereto acknowledges and agrees that upon any breach by Employee
      of
      his obligations under any of Section 7 hereof, the Company will have no adequate
      remedy at law, and accordingly will be entitled to specific performance and
      other appropriate injunctive and equitable relief. 

     

    (d)
      Severability.
      If
      any
      provision of this Agreement is held to be illegal, invalid or unenforceable,
      such provision will be fully severable and this Agreement will be construed
      and
      enforced as if such illegal, invalid or unenforceable provision never comprised
      a part hereof; and the remaining provisions hereof will remain in full force
      and
      effect and will not be affected by the illegal, invalid or unenforceable
      provision or by its severance herefrom. Furthermore, in lieu of such illegal,
      invalid or unenforceable provision, there will be added automatically as part
      of
      this Agreement a provision as similar in its terms to such illegal, invalid
      or
      unenforceable provision as may be possible and be legal, valid and enforceable.
      

     

    (e)
      Waivers.
      No
      delay
      or omission by either party hereto in exercising any right, power or privilege
      hereunder will impair such right, power or privilege, nor will any single or
      partial exercise of any such right, power or privilege preclude any further
      exercise thereof or the exercise of any other right, power or privilege.

     

    (f)
      Counterparts.
      This
      Agreement may be executed in multiple counterparts, each of which will be deemed
      an original, and all of which together will constitute one and the same
      instrument. 

    

    (g)
      Captions.
      The
      captions in this Agreement are for convenience of reference only and will not
      limit or otherwise affect any of the terms or provisions hereof 

     

    (h)
      Reference
      to Agreement.
      Use
      of
      the words “herein,” “hereof,” “hereto” and the like in this Agreement refer to
      this Agreement only as a whole and not to any particular subsection or provision
      of this Agreement, unless otherwise noted. 

     

    (i)
      Binding
      Agreement.
      This
      Agreement will be binding upon and inure to the benefit of the parties and
      will
      be enforceable by the personal representatives and heirs of Employee and the
      successors of Employer. If Employee dies while any amounts would still be
      payable to him hereunder, such amounts will be paid to Employee’s estate. This
      Agreement is not otherwise assignable by Employee. 

    

    (j)
      Designation of Beneficiary.
      If the
      Employee shall die before receipt of all payments and benefits to which he
      is
      entitled under this Agreement, payment of such amounts or benefits in the manner
      provided herein shall be made to such beneficiary as he shall have designated
      in
      writing filed with the Secretary of the Company or, in the absence of such
      designation, to his estate or personal representative. 

    

    (k)
      Attorneys
      Fees.
      In any
      proceeding brought to enforce any provision of this Agreement, or to seek
      damages for a breach of any provision hereof, or when any provision hereof
      is
      validly asserted as a defense, the prevailing party will be entitled to receive
      from the other party all reasonable attorney's fees and costs in connection
      therewith.

     

    
      
        
        

      

      
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    (j)
      Entire
      Agreement.
      This
      Agreement contains the entire understanding of the parties, supersedes all
      prior
      agreements and understandings relating to the subject matter hereof and may
      not
      be amended except by a written instrument hereafter signed by each of the
      parties hereto. 

     

    (k)
      Governing
      Law.
      This
      Agreement and the performance hereof will be construed and governed in
      accordance with the laws of the State of Nevada, without regard to its choice
      of
      law principles. 

     

    
      
        
        

      

      
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    EXECUTED
      as of the date first above written. 

     

    
      	 	 	 
	 	
              AEROGROW
                INTERNATIONAL, INC.

            
	 
 	 
 	 
 
	 	By:  	_____________________________________________________
	 	
              Its: 

            	______________________________________________
	 	 	 
	 	EMPLOYEE:
	 	 
	 	By: _____________________________________________________
	 	
              Mitchell
                B. Rubin

            

    

     

     

    

    
      
        
        

      

      
        7This promissory  note has not been registered  under the Securities Act of 1933,
as amended,  or registered or qualified under  applicable state securities laws.
Graphite  Technology  Group, Inc. is not required to give effect to any transfer
of this promissory note unless (1) there is an effective  registration statement
under  the  Securities  Act  with  respect  to this  promissory  note  and  this
promissory note is registered or qualified  under  applicable  state  securities
laws, or (2) the holder of the promissory  note provides to Graphite  Technology
Group, Inc. an opinion of counsel reasonably  acceptable to Graphite  Technology
Group,  Inc. to the effect that the transfer  may be made  without  registration
under the Securities Act and applicable state securities laws.

                              12 % PROMISSORY NOTE

$1,000,000                                                      February 7, 2006

      For value received, GRAPHITE TECHNOLOGY GROUP, INC., a Delaware
corporation ("Graphite"), hereby promises to pay to the order of BPK Resources,
Inc. (the "Holder") the amount of up to One Million Dollars ($1,000,000), or
such lesser amount having been advanced to Graphite by the Holder pursuant to
this Note, in accordance with the following terms:

      1. Payment of Amount Owed; Security. Graphite shall pay the Holder the
principal amount of this Note and all accrued interest on or before March 31,
2006. This Note shall be secured by all of the assets held by Graphite, as
evidenced by that certain Amended and Restated Security Agreement by and between
Graphite and Holder dated the date hereof (the "Security Agreement");

      2. Payment of Interest. Interest will accrue on the unpaid principal
amount of this Note at an annual rate of 12%. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.

      3. Stock Options. In the event Graphite determines not to further pursue
the proposed business combination with the Holder, the Holder shall have the
option to purchase for $1,00,000 at any time prior to December 31, 2008 such
number of shares of Graphite's common stock as shall equal thirteen and
one-third percent (13.33%) of Graphite's then outstanding common stock
calculated on a fully diluted basis (including all outstanding options, warrants
and other securities or rights convertible or exchangeable into the common
stock) as evidenced by that certain Option Agreement by and between Graphite and
Holder dated the date hereof (the "Option Agreement"). The number of shares of
stock of Graphite covered by this option, the option price and other relevant
provisions shall be appropriately adjusted in the event of a stock dividend,
recapitalization, forward stock split, reverse stock split or other similar
corporate transaction in order to prevent dilution or enlargement of benefits
intended to be made available hereby. In case Graphite issues any shares of its
common stock between the date hereof and the date of the exercise of such
option, or issues any option, warrant, convertible security or other right to
purchase or acquire its securities between the date hereof and the date of the
exercise of the option, then the option to purchase provided for in this
paragraph 3 shall be adjusted downward in price and upward in amount, on a
"full-ratchet" basis, based on the price of the securities so issued.

<PAGE>

      4. Representations and Negative Covenants. Graphite represents and
warrants to Holder that: (i) it has duly obtained all authorizations, consents,
rulings, approvals, licenses, franchises, permits and certificates by or of all
third parties to any existing agreements or instruments by which Graphite or any
of the properties or assets of Graphite is or may be bound, which are required
for the execution, delivery and performance of this Note, the Security
Agreement, or Option Agreement, and the consummation of the transactions
contemplated hereby or thereby, as applicable, and of or by all governmental
authorities and non-governmental administrative or regulatory agencies having
jurisdiction over Graphite, its assets or properties, this Note, the Security
Agreement, the Option Agreement or the Pledged Collateral (as that term is
defined in the Security Agreement), which are required for the execution,
delivery and performance of this Note, the Security Agreement or the Option
Agreement and the consummation of the transactions contemplated hereby or
thereby, as applicable; and (ii) neither the execution and delivery of this
Note, the Security Agreement or the Option Agreement by Graphite nor the
performance by Graphite of its obligations hereunder or thereunder as
applicable, will: (A) conflict with Graphites's certificate of incorporation or
bylaws; (B) violate any statute, law, ordinance, rule or regulation, applicable
to Graphite or any of the properties or assets of Graphite; or (C) violate,
breach, be in conflict with or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or permit
the termination of any provision of, or result in the termination of, the
acceleration of the maturity of, or the acceleration of the performance of any
obligation of Graphite, or result in the creation or imposition of any lien upon
any properties, assets or business of Graphite under, any contract or any order,
judgment or decree to which Graphite is a party or by which it or any of its
assets or properties is bound or encumbered. Until the full outstanding
principal amount and all accrued interest due hereunder is paid in full,
Graphite will not, without the prior written consent of the Holder, merge with,
or sell substantially all its assets to, any individual or entity other than the
Holder, sell any material amount of its assets to any individual or entity,
issue any shares of its capital stock or options, warrants or other securities
convertible or exchangeable into shares of its capital stock, declare or pay any
dividend, incur any debt other than trade debt incurred in the ordinary course
of business and consistent with past practice or the contemplated $625,000
Commonwealth of Pennsylvania DCED financing, or increase any salaries or bonuses
payable to any of its officers or key employees.

      5. Method of Payment. Graphite shall pay amounts due under this Note by
wire transfer of immediately available funds to an account designated by the
Holder in a written notice to Graphite. All payments must be in such currency as
is then legal tender for payment of public and private debts in the United
States of America. All amounts paid will be applied first to accrued, unpaid
interest on this Note and the balance, if any, will be applied to reducing the
principal amount of this Note.

      6. Prepayment. Graphite may prepay this Note in whole or in part at any
time without premium or penalty.

      7. Events of Default.

            The occurrence of one or more of the following events (an "Event of
Default") will cause Graphite to be in default under this Note:

                  Graphite fails to timely make the payment due under section 1
of this Note or breaches any other obligation contained in this Note;

                  Graphite breaches any of its negative covenants set forth in
section 4 of this Note; or

<PAGE>

                  there occurs an Event of Insolvency (as hereinafter defined).

            As used in this Note, an "Event of Insolvency" means any of the
following:

                  the initiation by Graphite of proceedings under the United
States Bankruptcy Code, or any other applicable U.S. federal or state law or any
applicable foreign law seeking an order for relief;

                  the consent of Graphite to the institution of bankruptcy or
insolvency proceedings against it;

                  the filing by Graphite of a petition seeking reorganization or
release under the Federal Bankruptcy Reform Act or any other applicable U.S.
federal or state law or applicable foreign law, or the consent by Graphite to
the filing of any such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of Graphite or of
any substantial part of the property of Graphite;

                  the making by Graphite of an assignment for the benefit of
creditors; and

                  the entry of a decree or order by a court having jurisdiction
adjudging Graphite bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of Graphite under the U.S. Bankruptcy Code or any other applicable U.S.
federal or state law or any applicable foreign law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
Graphite or of any substantial part of the property of Graphite, or ordering the
winding up or liquidation of the affairs of Graphite, and (A) Graphite consents
to that decree or order or (B) that decree or order remains unstayed and in
effect for more than 60 consecutive days.

      8. Acceleration. Upon occurrence of an Event of Default, the Holder may,
in the Holder's sole discretion, by notice to Graphite declare the entire unpaid
principal amount of this Note, all interest accrued and unpaid thereon, and all
other amounts payable hereunder to be forthwith due and payable, whereupon this
Note and all such other amounts will become immediately due and payable.

      9. Expenses. Graphite shall pay all reasonable expenses incurred by the
Holder in connection with collection and enforcement of this Note, including
without limitation reasonable attorneys' fees and costs.

      10. Waiver of Presentment. Graphite hereby waives presentment, notice of
demand for payment, protest, notice of dishonor, and any other notice of any
kind with respect to this Note.

      11. Waiver of Rights. Neither delay on the part of the Holder in
exercising any of the Holder's rights nor any partial or single exercise of any
of those rights constitutes a waiver thereof or of any other right, and no
waiver on the part of the Holder of any of the Holder's rights constitutes a
waiver of any other right.

      12. Amendment. This Note may only be amended, waived, discharged, or
terminated by an instrument in writing signed by the party against which
enforcement of the amendment, waiver, discharge, or termination is sought.

<PAGE>

      13. Successors and Assigns. This Note is binding on Graphite and its
successors and assigns, and inures to the benefit of the Holder and the Holder's
heirs, executors, successors, and assigns.

      14. Governing Law. The laws of the Commonwealth of Pennsylvania, without
giving effect to principles of conflict of laws, govern all matters arising
under this Note, including without limitation all tort claims.

      15. THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OF AUTHORITY FOR AN
ATTORNEY TO CONFESS JUDGMENT AGAINST GRAPHITE. IN GRANTING THIS WARRANT OF
AUTHORITY TO CONFESS JUDGMENT AGAINST GRAPHITE, GRAPHITE HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, AND ON THE ADVICE OF SEPARATE COUNSEL OF
GRAPHITE, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS GRAPHITE HAS OR MAY HAVE TO
PRIOR NOTICE, EXCEPT AS OTHERWISE PROVIDED HEREIN, AND AN OPPORTUNITY FOR
HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE
COMMONWEALTH OF PENNSYLVANIA.

      GRAPHITE IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR THE
PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF PENNSYLVANIA, OR
ELSEWHERE, TO APPEAR FOR GRAPHITE AT ANY TIME AFTER DEFAULT UNDER THIS NOTE IN
ANY ACTION BROUGHT AGAINST GRAPHITE ON THIS NOTE AT THE SUIT OF HOLDER, AS OF
SUCH TERM, AND IN THAT ACTION TO CONFESS OR ENTER JUDGMENT AGAINST GRAPHITE FOR
THE ENTIRE UNPAID PRINCIPAL OF THIS NOTE AND ALL OTHER SUMS PAID BY HOLDER TO OR
ON BEHALF OF GRAPHITE PURSUANT TO THE TERMS OF THIS NOTE, AND ALL INTEREST
ACCRUED ON THOSE AMOUNTS, TOGETHER WITH COSTS OF SUIT, ATTORNEYS' COMMISSION FOR
COLLECTION OF FIVE PERCENT (5%) OF THE TOTAL AMOUNT THEN DUE BY GRAPHITE TO
HOLDER, TOGETHER WITH INTEREST ON ANY JUDGMENT OBTAINED BY HOLDER AT THE RATE OF
INTEREST SPECIFIED IN THE NOTE AFTER DEFAULT, INCLUDING INTEREST AT THAT RATE
FROM AND AFTER ANY SHERIFF'S OR JUDICIAL SALE UNTIL ACTUAL PAYMENT IS MADE TO
HOLDER OF THE FULL AMOUNT DUE HOLDER; AND FOR SO DOING THIS NOTE OR A COPY OF
THIS NOTE VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. THE AUTHORITY
GRANTED IN THIS NOTE TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY EXERCISE
OF IT BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL PAYMENT IN
FULL OF ALL AMOUNTS DUE UNDER THIS NOTE.

<PAGE>

      Graphite is executing this Note on the date stated at the top of this
Note.

                                               GRAPHITE TECHNOLOGY GROUP, INC.

                                               By: /s/ James E. Olive
                                                  ------------------------------
                                                        James E. Olive
                                                        President

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