Document:

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                          Hybrid Fuel Systems, Inc.

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    This offering consists of $340,000 of the Company's 5 Year Convertible
                       Debentures convertible into the
                           Company's Common Stock.

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                            SUBSCRIPTION AGREEMENT

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SUBSCRIPTION PROCEDURES

      Convertible Debentures of Hybrid Fuel Systems, Inc. (the "Company") are
being offered (the "Debentures"). This offering is being made in accordance with
the exemptions from registration provided for under Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act") and Rule 506 of Regulation D
promulgated under the 1933 Act.

      In order to purchase Debentures, each subscriber must complete and execute
a questionnaire (the "Questionnaire") and a subscription agreement (the
"Subscription Agreement"). In addition, the subscriber must make a payment
pursuant to the Funds Authorization Distribution Agreement, for the amount being
purchased or directly by the Holder. All subscriptions are subject to acceptance
by the Company, which shall not occur until the Company has returned the signed
Company Signature Page.

            The Questionnaire is designed to enable the Holder to demonstrate
the minimum legal requirements under federal and state securities laws to
purchase the Debentures. The Signature Page for the Questionnaire and the
Subscription Agreement contain representations relating to the subscription and
should be reviewed carefully by each subscriber.

      If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to thirty percent (30%) of any dividends paid by the
Company. In order to eliminate or reduce such withholding tax you must submit a
properly executed I.R.S. Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States) or I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate),
claiming exemption from withholding or eligibility for treaty benefits in the
form of a lower rate of withholding tax on interest or dividends.

      Payment of the full subscription amount will be made by wire transfer by
Dutchess Private Equities Fund, II, LP (the "Holder") on or prior to the closing
per the wire instructions that will be established. In the event of a
termination of the offering or the rejection of a subscription, subscription
funds will be returned by the Company without interest or charges.

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THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

SUBSCRIPTION AGREEMENT

To:   Hybrid Fuel Systems, Inc.

      This Subscription Agreement is made between Hybrid Fuel Systems, Inc., a
Georgia corporation, (the "Company"), and the undersigned prospective Holder,
Dutchess Private Equities Fund, II, LP ("Holder") who is subscribing hereby for
the Company's convertible debentures (the "Debentures") on November 4, 2005.
This subscription is submitted to you in accordance with and subject to the
terms and conditions described in this Subscription Agreement, together with any
Exhibits thereto, relating to an offering (the "Offering") of Three Hundred and
Forty Thousand dollars ($340,000) of Debentures. The Offering is limited to
accredited Investors and is made in accordance with the exemptions from
registration provided for under Section 4(2) of the 1933 Act and Rule 506 of
Regulation D promulgated under the 1933 Act ("Regulation D").

      Whereas, contemporaneously with the execution and delivery of this
Agreement, the partiers hereto are executing and delivering a Debenture
Registration Rights Agreement, the Debenture Agreement, the Irrevocable Transfer
Agent Agreement between the Company and Dutchess Capital Management, LLC,
Security Agreement and Warrant Agreement (collectively, the "Transaction
Documents").

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1. SUBSCRIPTION.

      (a) The closing shall be deemed to have occurred on the date in the
preamble of this document (the "Closing Date" or a "Closing"). The Company shall
pay twelve percent (12%) annual coupon on the unpaid principal amount of this
Debenture (the "Debenture") at such times and in such amounts as outlined in the
Debenture Agreement.

      (b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased, the Debentures so purchased will be forwarded by the
Company to the Holder or its broker, as listed on the signature page, and the
name of such Holder will be registered on the Debenture transfer books of the
Company as the record owner of such Debentures.

      (c) As long as the Holder owns the Debenture, the Holder shall have the
right to change the terms for the balance of the Debenture it then holds, to
match the terms of any other offering of securities made by the Company.

      (d) The Holders shall fund one hundred and ninety thousand dollars
($190,000) upon the initial closing (pursuant to the Funds Authorization Letter)
and an additional one hundred and fifty thousand dollars ($150,000)
simultaneously on the date the registration statement covering this Offering is
filed with the United States Securities and Exchange Commission ("SEC").

2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER.

      The Holder hereby represents and warrants to, and agrees with, the Company
as follows:

            (a) The Holder has been furnished with, and has carefully read the
      applicable form of Debenture Registration Rights Agreement, and the
      Debenture and is familiar with and understands the terms of the Offering.
      With respect to tax and other economic considerations involved in his
      investment, the Holder is not relying on the Company. The Holder has
      carefully considered and has, to the extent the Holder believes such
      discussion necessary, discussed with the Holder 's professional legal,
      tax, accounting and financial advisors the suitability of an investment in
      the Company, by purchasing the Debentures, for the Holder 's particular
      tax and financial situation and has determined that the investment being
      made by the Holder is a suitable investment for the Holder.

            (b) The Holder acknowledges that all documents, records, and books
      pertaining to this investment which the Holder has requested have been
      made available for inspection or the Holder has had access thereto.

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            (c) The Holder has had a reasonable opportunity to ask questions of
      and receive answers from a person or persons acting on behalf of the
      Company concerning the Offering and if such opportunity was taken then all
      such questions have been answered to the full satisfaction of the Holder.

            (d) The Holder will not sell, or otherwise dispose of the Debentures
      or the Common Stock issued upon conversion of the Debentures without
      registration under the 1933 Act or applicable state securities laws or
      compliance with an exemption therefrom including but not limited to: Rule
      144A, 144 (k) (herein after referred to as an "Exemption"). The Debentures
      have not been registered under the 1933 Act or under the securities laws
      of any state. Resales of the Common Stock underlying the Debentures or
      issued in payment of accrued interest on the Debentures are to be
      registered by the Company pursuant to the terms of the Debenture
      Registration Rights Agreement incorporated herein and made a part hereof.

            (e) The Holder recognizes that an investment in the Debentures
      involves substantial risks, including loss of the entire amount of such
      investment. Further, the Holder has carefully read and considered the
      schedules attached hereto.

            (f) The Holder acknowledges that each certificate representing the
      Debentures (and the shares of Common Stock issued upon conversion of the
      Debentures, unless registered or with an Exemption) or in payment of
      interest on the Debentures shall be stamped or otherwise imprinted with a
      legend substantially in the following form:

            THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR
            SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
            EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
            SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE,
            PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH
            ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) PURSUANT TO
            AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

            If Holder sends a Notice of Conversion (See Exhibit A attached
      hereto), and provided a registration statement under the Securities Act of
      1933 is in effect as to the sale, then in such event the Company shall
      have its transfer agent send Holder the appropriate number of shares of
      Common Stock without restrictive legends (other than a legend referring to
      the resale registration and prospectus delivery requirements) and the
      Company is not subject to stop transfer instructions.

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            (g) If this Subscription Agreement is executed and delivered on
      behalf of a corporation or legal entity other than a natural person: (i)
      such corporation or other entity has the full legal right and power and
      all authority and approval required (a) to execute and deliver, or
      authorize execution and delivery of this Subscription Agreement and all
      other instruments (including, without limitation, the Debenture
      Registration Rights Agreement, Irrevocable Transfer Agent Agreement,
      Security Agreement, Warrant Agreement and Debenture Agreements) executed
      and delivered by or on behalf of such corporation in connection with the
      purchase of the Debentures and (b) to purchase and hold the Debentures;
      and (ii) the signature of the party signing on behalf of such corporation
      or entity is binding upon such corporation.

            (h) The Holder is not subscribing for the Debentures as a result of,
      or pursuant to, any advertisement, article, notice or other communication
      published in any newspaper, magazine or similar media or broadcast over
      television or radio or presented at any seminar or meeting.

             (i) The Holder is purchasing the Debentures for its own account for
      investment, and not with a view toward the resale or distribution thereof,
      except pursuant to sales registered or exempted from registration under
      the 1933 Act. The Holder has not offered or sold any portion of the
      Debentures being acquired nor does the Holder have any present intention
      of dividing the Debentures with others or of selling, distributing or
      otherwise disposing of any portion of the Debentures either currently or
      after the passage of a fixed or determinable period of time or upon the
      occurrence or non-occurrence of any predetermined event or circumstance in
      violation of the 1933 Act provided, however, that by making the
      representations herein, Holder does not agree to hold any of the
      Debentures for any minimum or other specific term and reserves the right
      to dispose of the Debentures at any time in accordance with or pursuant to
      a registration statement or an exemption under the 1933 Act. Holder is
      neither an underwriter of, nor a dealer in, the Debentures or the Common
      Stock issuable upon conversion thereof or upon the payment of interest
      thereon and is not participating in the distribution or resale of the
      Debentures or the Common Stock issuable upon conversion or exercise
      thereof.

            (j) The Holder or the Holder's representatives, as the case may be,
      has such knowledge and experience in financial, tax and business matters
      so as to enable the Holder to utilize the information made available to
      the Holder in connection with the Offering to evaluate the merits and
      risks of an investment in the Debentures and to make an informed
      investment decision with respect thereto.

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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Holder that:

      a. Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Subscription Agreement means any entity in which the
Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the respective jurisdictions of their incorporation, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Both the Company and its Subsidiaries are duly
qualified to do business and are in good standing in every jurisdiction in which
their ownership of property or the nature of the business conducted by them
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Subscription Agreement, "MATERIAL ADVERSE EFFECT" means any
material adverse effect on the business, properties, assets, operations, results
of operations, financial condition or prospects of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined in Section 3(b)below).

      b. Authorization; Enforcement; Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Subscription Agreement, the Debenture Registration Rights
Agreement, Warrant Agreement, Security Agreement, and the Irrevocable Transfer
Agent Instructions among the Company, the Holder, Transfer Agent, and Dutchess
Capital Management, LLC and the Debenture Agreement, and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Subscription Agreement (collectively, the
"TRANSACTION DOCUMENTS"), and to issue the Debentures in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the reservation
for issuance and the issuance of the Debentures pursuant to this Subscription
Agreement, have been duly and validly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors, or its shareholders, (iii) the Transaction Documents
have been duly and validly executed and delivered by the Company, and (iv) the
Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.

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      c. Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of 150,000,000 shares of Common Stock, of which as of the
date hereof, approximately 83,354,981 and 65,509,843 shares issued and
outstanding, respectively. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c) which is attached hereto and made a part hereof, (i)
no shares of the Company's capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding shares of capital stock, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Debenture Registration Rights
Agreement), (v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries, (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Subscription Agreement, (vii)
the Company does not have any stock appreciation rights or "phantom stock" plans
or agreements or any similar plan or agreement and (viii) there is no dispute as
to the class of any shares of the Company's capital stock. The Company has
furnished to the Holder, or the Holder has had access through EDGAR to, true and
correct copies of the Company's Articles of Incorporation, as in effect on the
date hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS `).

      d. Issuance of Debentures. A sufficient number of Debentures issuable
pursuant to this Subscription Agreement, but not more than 4.99% of the shares
of Common Stock outstanding as of the date hereof (if the Company becomes listed
on Nasdaq or the American Stock Exchange), has been duly authorized and reserved
for issuance pursuant to this Subscription Agreement. Upon issuance in
accordance with this Subscription Agreement, the Debentures will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof. In the event the Company cannot register a
sufficient number of shares of Common Stock, due to the remaining number of
authorized shares of Common Stock being insufficient, the Company will use its
best efforts to register the maximum number of shares it can based on the
remaining balance of authorized shares and will use its best efforts to increase
the number of its authorized shares as soon as reasonably practicable.

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      e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree, including United States federal and state securities laws and
regulations and the rules and regulations of the principal securities exchange
or trading market on which the Common Stock is traded or listed (the "Principal
Market"), applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 3(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any
governmental authority or agency, regulatory or self-regulatory agency, or
court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Subscription Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
3(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.

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      f. SEC Documents; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Securities and Exchange Commission ("SEC") pursuant to the reporting
requirements of the Securities and Exchange Act of 1934 ("1934 Act") (all of the
foregoing filed since the date of the Company's reverse merger in October 2004
and prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered
to the Holder or its representatives, or they have had access through EDGAR, to
true and complete copies of the SEC Documents. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Holder which is not included in the SEC Documents, including,
without limitation, information referred to in Section 3(d) of this Subscription
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.

      g. Absence of Certain Changes. Except as disclosed in Schedule 3(g) or the
SEC Documents filed at least thirty (30) days prior to the date hereof, there
has been no change or development in the business, properties, assets,
operations, financial condition, results of operations or prospects of the
Company or its Subsidiaries which has had or reasonably could have a Material
Adverse Effect. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company or its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings.

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      h. Absence of Litigation. Except as set forth in the Company's SEC
filings, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the executive officers of Company or any
of its Subsidiaries, threatened against or affecting the Company, the Common
Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, in
which an adverse decision could have a Material Adverse Effect.

      i. Acknowledgment Regarding the Purchase of Debentures. The Company
acknowledges and agrees that the Holder is acting solely in the capacity of an
arm's length investor with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Holder is not 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 hereby and thereby and any advice given by the Holder
or any of its respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to the Holder's purchase of the Debentures. The Company
further represents to the Holder that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

      j. Intentionally omitted.

      k. Employee Relations. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.

      l. Intellectual Property Rights. All patents, patent applications,
trademark registrations and applications for trademark registration held by the
Company are owned free and clear of all mortgages, liens, charges or
encumbrances whatsoever. No licenses have been granted with respect to these
items and the Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others, and, except as set forth on Schedule 3(l), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service mark registrations, trade secret or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.

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      m. Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.

      n. Title. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(n) or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its Subsidiaries.
Any real property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.

      o. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

      p. Regulatory Permits. The Company and its Subsidiaries have in full force
and effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.

                                       12
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      q. Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

      r. No Materially Adverse Contracts, Etc. Neither the Company nor any of
its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.

      s. Tax Status. The Company's consolidated 2004 federal income tax return,
the Company and each of its Subsidiaries has made or filed all United States
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has set
aside on its books provision reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.

      t. Certain Transactions. Except as set forth in the SEC Documents filed at
least ten days prior to the date hereof and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed on Schedule 3(c), none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

                                       13
<PAGE>

      u. Dilutive Effect. The Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Subscription Agreement will increase in certain circumstances including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines following the effective date of the registration statement
covering the Common Stock underlying the Debentures (the "Effective Date"). The
Company's executive officers and directors have studied and fully understand the
nature of the transactions contemplated by this Subscription Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Subscription Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.

      v. Additional Financings. Except for (i) shares issued pursuant to a
registration statement on Form S-8 for the payment of legal services provided by
the Company's SEC counsel; (ii) shares issued pursuant to a registration
statement on Form S-8 as a normal course of the Company's existing employee
option program; and (iii) shares issued upon the exercise of or conversion of
any securities issued hereunder, convertible securities, options or warrants
issued and outstanding on the date of this Agreement, the Company shall not,
directly nor indirectly, without the prior written consent of Holder, offer,
sell, grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition) any of its
Common Stock or securities convertible into Common Stock, or file any
registration statement, including those on Form S-8 for any securities (a
"SUBSEQUENT FINANCING"), in either case ending on the earlier to occur of (i)
three hundred and sixty (360) days after the effective date of the registration
statement covering resale of the shares of Common Stock underlying the
Debentures (the "Effective Date") and (ii) the date on which the full face
amount and accrued interest on the Debentures have been paid ("Lock Up Period").

      During the twelve (12) month period following Closing, or if there is any
outstanding balance on the Debentures, the Holder shall retain a first right of
refusal for any additional financings. The Company must submit to the Holder a
duly authorized term sheet of the financing and the Holder may elect, in writing
within five (5) days, to exercise its right to finance the Company upon the same
terms and conditions. In the event the Holder does not elect to complete such
financing within such period, the Company may proceed with the proposed
third-party financing on the same terms and conditions as contained in the
notice to Holder.

                                       14
<PAGE>

      w. Sarbanes-Oxley Compliance. The Company hereby acknowledges that they
are current with the requirement of Sarbanes-Oxley Act of 2002 ("Sarbox"), and
will remain compliant with Sarbox and its rules and regulations for reporting
requirements in the time frame required by Sarbox, and any updates to deadlines
imposed by Sarbox.

      x. Code of Ethics. The Company has adopted a Code of Ethics and has filed
the Code with the SEC.

4. COVENANTS OF THE COMPANY

      a. Best Efforts. The Company shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in this Subscription
Agreement.

      b. Blue Sky. The Company shall, at its sole cost and expense, make all
filings and reports relating to the offer and sale of the Debentures and the
Common Stock underlying the Debentures as required under the applicable
securities or "Blue Sky" laws of such states of the United States as specified
by the Holder.

      c. Reporting Status. Until the earlier of (i) the date that the Holder may
sell all of the Common Stock underlying the Debentures acquired pursuant to this
Subscription Agreement without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto), or (ii) the date on which the Holder
shall have sold all the Common Stock underlying the Debentures, the Company
shall file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as a reporting company under
the 1934 Act.

      d. Use of Proceeds. The Company shall use the entire proceeds from this
Debenture exclusively to further the growth and interest of the Company. Any
other use of the funds contemplated herein, shall be considered a breach of
contract and an event of Default.

      e. Conditions to Closing, The Company shall sign and comply with the
Transaction Documents with Dutchess Private Equities Fund, II, L.P.

      f. Financial Information. The Company agrees to make available to the
Holder via EDGAR or other electronic means the following: (i) within five (5)
business days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any Current
Reports on Form 8-K and any Registration Statements or amendments filed pursuant
to the 1933 Act; (ii) on the same day as the release thereof, facsimile copies
of all press releases issued by the Company or any of its Subsidiaries, (iii)
copies of any notices and other information made available or given to the
shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders and (iv) within two (2) calendar
days of filing or delivery thereof, copies of all documents filed with, and all
correspondence sent to, the Principal Market, any securities exchange or market,
or the National Association of Securities Dealers, Inc.

                                       15
<PAGE>

      g. Reservation of Common Stock. Subject to the following sentence, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Common Stock underlying the Debentures.
In the event that the Company determines that it does not have a sufficient
number of authorized shares of Common Stock to reserve and keep available for
issuance, the Company shall use its best efforts to increase the number of
authorized shares of Common Stock by seeking shareholder approval for the
authorization of such additional shares. The Holder shall have the right to
determine the amount of shares to be re-registered to satisfy the terms of the
Agreement. Such amount must be usual or customary.

      h. Listing. The Company shall promptly secure the listing of all of the
Common Stock underlying the Debentures upon the Principal Market and each other
national securities exchange and automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and shall maintain, such listing. The Company shall maintain the Common Stock's
authorization for quotation on the Principal Market, unless the Holder and the
Company agree otherwise. Neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market (excluding suspensions of
not more than one trading day resulting from business announcements by the
Company). The Company shall promptly provide to the Holder copies of any notices
it receives from the Principal Market regarding the continued eligibility of the
Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section.

      i. Transactions With Affiliates. During the Lock-Up Period, the Company
shall not, and shall cause each of its Subsidiaries not to, enter into, amend,
modify or supplement, or permit any Subsidiary to enter into, amend, modify or
supplement, any agreement, transaction, commitment or arrangement with any of
its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two years, shareholders who
beneficially own five percent (5%) or more of the Common Stock, or affiliates or
with any individual related by blood, marriage or adoption to any such
individual or with any entity in which any such entity or individual owns a five
percent (5%) or more beneficial interest (each a "RELATED PARTY") during the
Lock Up Period; except for (i) customary employment arrangements and benefit
programs on reasonable terms (including changes currently under discussion with
the Company's Board of Directors concerning the compensation, to be payable in
stock, of the Chairman of the Board), (ii) any agreement, transaction,
commitment or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, or (iii) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company.
For purposes hereof, any director who is also an officer of the Company or any
Subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment or arrangement. "AFFILIATE" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a five percent (5%) or more equity
interest in that person or entity, (ii) has five percent (5%) or more common
ownership with that person or entity, (iii) Controls that person or entity, or
(iv) shares common control with that person or entity. "CONTROL" or "CONTROLS"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.

                                       16
<PAGE>

      j. Corporate Existence. The Company shall use its commercially reasonable
best efforts to preserve and continue the corporate existence of the Company.

      k. Notice of Certain Events Affecting Registration. The Company shall
promptly notify Holder upon the occurrence of any of the following events in
respect of a registration statement or related prospectus covering the Common
Stock underlying the Debentures: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the registration statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of any registration statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Common Stock underlying the Debentures for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
registration statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of a registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate, and the Company
shall promptly make available to Holder any such supplement or amendment to the
related prospectus.

                                       17
<PAGE>

      l. Indemnification. In consideration of the Holder's execution and
delivery of the this Agreement and the Debenture Registration Rights Agreement
and acquiring the Debentures hereunder and in addition to all of the Company's
other obligations under the Transaction Documents, the Company shall defend,
protect, indemnify and hold harmless the Holder and all of its shareholders,
officers, directors, employees and direct or indirect investors and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Debentures or (v) the status of the Holder as an investor in the Company,
except, in the case of any of such clauses, insofar as any such Indemnified
Liability was attributable to gross negligence, willful misconduct or any
illegal activity on the part of Holder and, in the case of clause (v) only,
insofar as any such Indemnified Liability was attributable to an untrue
statement, alleged untrue statement, omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Holder which is specifically intended by the Holder for use in
the preparation of any Registration Statement, preliminary prospectus or
prospectus. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The indemnity provisions contained herein
shall be in addition to any cause of action or similar rights the Holder may
have, and any liabilities to which the Holder may be subject. Notwithstanding
the foregoing, the Company shall have no indemnification responsibility in the
event Holder fails to timely notify the Company of a claim or potential claim
for which indemnification is sought, but only to the extent the Company is
prejudiced thereby. The Company shall have the right to control the defense of
any such claim and the Holder shall not consent to any settlement of any such
claim without the prior written consent of the Company (which shall not be
unreasonably withheld or delayed). The Holder shall provide indemnification
comparable in scope and coverage to the Company and corresponding related
persons in respect of any Indemnified Liability if and to the extent
attributable to gross negligence, willful misconduct or any illegal activity on
the part of Holder, and shall be obligated to reimburse the Company and such
persons to the same extent as the Company's reimbursement obligations under
Section 4(m) below.

                                       18
<PAGE>

      m. Reimbursement. If (i) Holder, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Holder is impleaded in any such
action, proceeding or investigation by any person, or (ii) Holder, other than by
reason of its gross negligence or willful misconduct or by reason of its trading
of the Common Stock in a manner that is illegal under the federal securities
laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Holder is impleaded in any such
action, proceeding or investigation by any person, then in any such case, the
Company will reimburse Holder for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which Holder is a named party, the Company will pay to Holder
the charges, as reasonably determined by Holder, for the time of any officers or
employees of Holder devoted to appearing and preparing to appear as witnesses,
assisting in preparation for hearings, trials or pretrial matters, or otherwise
with respect to inquiries, hearing, trials, and other proceedings relating to
the subject matter of this Subscription Agreement. The reimbursement obligations
of the Company under this section shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any affiliates of Holder that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees, attorneys,
accountants, auditors and controlling persons (if any), as the case may be, of
Holder and any such affiliate, and shall be binding upon and inure to the
benefit of any successors of the Company, Holder and any such affiliate and any
such person.

      n. Transfer Agent. The Company covenants and agrees that, in the event
that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to the Maturity Date (as defined in the
Debenture Agreement), the Company shall immediately appoint a new transfer agent
and shall require that the new transfer agent execute and agree to be bound by
the terms of the Irrevocable Transfer Agent Instructions (as defined herein).
The Company shall be up to date with all payments to the transfer agent, and
continue to pay transfer agent as outlined in the Irrevocable Transfer Agent
Agreement.

                                       19
<PAGE>

5. OPINION LETTER/BOARD RESOLUTION

      Prior to or on the Closing Date the Company shall deliver to the Holder an
opinion letter signed by counsel for the Company in the form attached hereto as
Exhibit D. If the Company's counsel fails to provide a Rule 144 opinion letter
in a timely manner, then the Company shall: (a) pay the Investor's counsel to
write said Rule 144 opinion letter; and (b) instruct the designated transfer
agent to accept same Rule 144 Opinion letter. Also, prior to or on the Closing
Date the Company shall deliver to the Holder a signed Board Resolution
authorizing this Offering, which shall be attached hereto as Exhibit E.

6. DELIVERY INSTRUCTIONS; FEES

      The Debentures being purchased hereunder shall be delivered to Dutchess
Private Equities Fund, II, L.P. on the Closing Date at which time funds will be
wired to the Company and the Debentures will be delivered to the Holder, per the
Holder's instructions.

7. UNDERSTANDINGS.

      The undersigned understands, acknowledges and agrees with the Company as
follows:

FOR ALL SUBSCRIBERS:

      a. This Subscription may be rejected, in whole or in part, by the Company
in its sole and absolute discretion at any time before the date set for Closing
unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement and delivering it to Holder.

      b. No U.S. federal or state agency or any agency of any other jurisdiction
has made any finding or determination as to the fairness of the terms of the
Offering for investment nor any recommendation or endorsement of the Debentures
or the Company.

      c. The representations, warranties and agreements of the undersigned and
the Company contained herein shall be true and correct in all material respects
on and as of the date of the sale of the Debentures as if made on and as of such
date and shall survive the execution and delivery of this Subscription Agreement
and the purchase of the Debentures.

      d. In making an investment decision, Holders must rely on their own
examination of the Company and the terms of the Offering, including the merits
and risks involved. The shares have not been recommended by any federal or state
securities commission or regulatory authority. Furthermore, the foregoing
authorities have not confirmed the accuracy or determined the adequacy of this
document. Any representation to the contrary is a criminal offense.

                                       20
<PAGE>

      e. The Offering is intended to be exempt from registration by virtue of
Section 4(2) of the 1933 Act and the provisions of Regulation D thereunder,
which is in part dependent upon the truth, completeness and accuracy of the
statements made by the undersigned herein and in the Questionnaire.

      f. It is understood that in order not to jeopardize the Offering's exempt
status under Section 4(2) of the 1933 Act and Regulation D, any Holder may, at a
minimum, be required to fulfill the investor suitability requirements
thereunder.

      g. The shares may not be resold except as permitted under the securities
act and applicable state securities laws, pursuant to registration or exemption
therefrom. Holder should be aware that they will be required to bear the
financial risks of this investment for an indefinite period of time.

8. DISPUTES SUBJECT TO ARBITRATION GOVERNED BY MASSACHUSETTS LAW

      a. All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.

9. MISCELLANEOUS.

      a. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Subscription Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:

If to the Company:

Mark Clancy
Hybrid Fuel Systems
12409 Telecom Drive
Tampa, FL 33637
Telephone: 813-979-9222
Facsimile:  813-979-9224

                                       21
<PAGE>

If to the Holder:

With a Copy to:

Darrin M. Ocasio, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st flr.
New York, NY 10018

Telephone: 212-930-9700
Facsimile:  212-930-9725

      At the address listed in the Questionnaire.

      Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.

      b. All pronouns and any variations thereof used herein shall be deemed to
refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.

      c. Neither this Subscription Agreement nor any provision hereof shall be
waived, modified, changed, discharged, terminated, revoked or canceled, except
by an instrument in writing signed by the party effecting the same against whom
any change, discharge or termination is sought.

      d. Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered or sent
by facsimile transmission: (i) if to the Company, at it's executive offices or
(ii) if to the Holder, at the address for correspondence set forth in the
Questionnaire, or at such other address as may have been specified by written
notice given in accordance with this paragraph.

      e. This Subscription Agreement shall be enforced, governed and construed
in all respects in accordance with the laws of the Commonwealth of
Massachusetts, as such laws are applied by Massachusetts courts to agreements
entered into, and to be performed in, Massachusetts by and between residents of
Massachusetts, and shall be binding upon the undersigned, the undersigned's
heirs, estate and legal representatives and shall inure to the benefit of the
Company and its successors. If any provision of this Subscription Agreement is
invalid or unenforceable under any applicable statue or rule of law, then such
provisions shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof that may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.

                                       22
<PAGE>

      f. This Agreement shall not be assignable.

      g. This Subscription Agreement, together with Exhibits A, B, C, D, and E
attached hereto and made a part hereof, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by both parties hereto.

      h. This Subscription Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Execution and delivery of this Subscription Agreement by exchange of facsimile
copies bearing the facsimile signature of a party shall constitute a valid and
binding execution and delivery of this Subscription Agreement by such party.
Such facsimile copies shall constitute enforceable original documents.

10.  Transfer Agent Instructions

      The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Dutchess Capital Management, LLC and its
managing members ("DCM"), as its agent for purpose of having certificates
issued, registered in the name of the Holder or its respective nominee(s), for
the issuance of Shares representing such amounts from the respective for
conversions or warrants, as specified from time to time by the Holder to the
Company upon the Conversion Date (as defined in the Debenture Agreement), and
for any and all Liquidated Damages, if any (as this term is defined in the
Debenture Registration Rights Agreement). DCM shall be paid a cash fee of Fifty
Dollars ($50) for every occasion they act pursuant to the Irrevocable Transfer
Agent Instructions. The Company shall not change its transfer agent without the
express written consent of the Holder, which may be withheld by the Holder in
its sole discretion. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 10, will be
given by the Company to its transfer agent and that the issuance of Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Debenture Registration Rights
Agreement. Nothing in this Section 10 shall affect in any way the Holder's
obligations and agreement to comply with all applicable securities laws upon
resale of Shares. If the Holder provides the Company with an opinion of counsel,
in form, scope and substance customary for opinions of counsel in comparable
transactions to the effect that registration of a resale by the Holder of any of
the Conversion Shares is not required under the 1933 Act, the Company shall
within two (2) business days instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Holder.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holder by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 10 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 10, that the Holder shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.

                                       23
<PAGE>

11. Waiver:

The Holder's delay or failure at any time or times hereafter to require strict
performance by Company of any undertakings, agreements or covenants shall not
waiver, affect, or diminish any right of the Holder under this Agreement to
demand strict compliance and performance herewith. Any waiver by the Holder of
any Event of Default shall not waive or affect any other Event of Default,
whether such Event of Default is prior or subsequent thereto and whether of the
same or a different type. None of the undertakings, agreements and covenants of
the Company contained in this Agreement, and no Event of Default, shall be
deemed to have been waived by the Holder, nor may this Agreement be amended,
changed or modified, unless such waiver, amendment, change or modification is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Holder.

12. Waiver of Jury Trial.

AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS AGREEMENT, THE
PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
ASSOCIATED WITH THIS TRANSACTION.

            [BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

                                       24
<PAGE>

Hybrid Fuel Systems, Inc.

QUESTIONNAIRE

      The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned's subscription to purchase the
Debentures described in the Subscription Agreement may be accepted.

      ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned understands, however, that the Company may
present this Questionnaire to such parties as it deems appropriate if called
upon to establish that the proposed offer and sale of the Securities is exempt
from registration under the 1933 Act, as amended. Further, the undersigned
understands that the offering is required to be reported to the Securities and
Exchange Commission, and to various state securities and "blue sky" regulators.

      IN ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY THE COMPANY,
THE UNDERSIGNED MUST COMPLETE FORM W-9.

I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES.

|_|         1. The undersigned: (a) has total assets in excess of
            $5,000,000; (b) was not formed for the specific purpose of acquiring
            the securities and (c) has its principal place of business in
            ___________.

|_|         2. The undersigned is a natural person whose individual net worth*
            or joint net worth with his or her spouse exceeds $1,000,000.

|_|         3. The undersigned is a natural person who had an individual income*
            in excess of $200,000 in each of the two most recent years and who
            reasonably expects an individual income in excess of $200,000 in the
            current year. Such income is solely that of the undersigned and
            excludes the income of the undersigned's spouse.

|_|         4. The undersigned is a natural person who, together with his or her
            spouse, has had a joint income* in excess of $300,000 in each of of
            the two most recent years and who reasonably expects a joint income
            in excess of $300,000 in the current year.

* For purposes of this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In determining "income", an investor should
add to his or her adjusted gross income any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to IRA or Keogh retirement plan,
alimony payments and any amount by which income from long-term capital gains has
been reduced in arriving at adjusted gross income.

                                       25
<PAGE>

            5. The undersigned is:

|_|                (a) a bank as defined in Section 3(a)(2) of the 1933 Act; or

|_|                (b) a savings and loan association or other institution as
                   defined in Section 3(a)(5)(A) of the 1933 Act whether acting
                   in its individual or fiduciary capacity; or

|_|                (c) a broker or dealer registered pursuant to Section 15 of
                   the 1934 Act; or

|_|                (d) an insurance company as defined in Section 2(13) of the
                   1933 Act; or

|_|                (e) An investment company registered under the Investment
                   Company Act of 1940 or a business development company as
                   defined in Section 2(a)(48) of the Investment Company Act of
                   1940; or

|_|                (f) a small business investment company licensed by the U.S.
                   Small Business Administration under Section 301 (c) or (d) of
                   the Small Business Investment Act of 1958; or

|X|                6. The undersigned is an entity in which all of the equity
                   owners are accredited investors.

                                       26
<PAGE>

II. HOLDER INFORMATION.

            Name of Entity    Dutchess Private Equities Fund, II, L.P._
                          ---------------------------------------------

            Person's Name Douglas Leighton Title: Managing Member
                          ----------------        ---------------

            State of Organization     Delaware
                                  -------------------------------

            Principal Business Address   50 Commonwealth Ave
                                       ------------------------

            City, State, Zip Code       Boston, MA 02116
                                  --------------------------------

            Taxpayer Identification Number
                                           ----------------------

-           Phone   617-301-4700         Fax    617-249-0947
                    ------------             ---------------

            Send Correspondence to:

                        50 Commonweatlh Ave, Suite 2
            --------------------------------------------------
                        Boston, MA 02116
            ------------------------------------------------

            -----------------------------------------------

                                       27
<PAGE>

Hybrid Fuel Systems, Inc.

SIGNATURE PAGE

      Your signature on this Signature Page evidences your agreement to be bound
by the Questionnaire, Subscription Agreement and Debenture Registration Rights
Agreement.

      1. The undersigned hereby represents that (a) the information contained in
the Questionnaire is complete and accurate and (b) the undersigned will notify
Company immediately if any material change in any of the information occurs
prior to the acceptance of the undersigned's subscription and will promptly send
Company written confirmation of such change.

      2. The undersigned signatory hereby certifies that he/she has read and
understands the Subscription Agreement and Questionnaire, and the
representations made by the undersigned in the Subscription Agreement and
Questionnaire are true and accurate.

           $340,000                             November 4, 2005

------------------------------            ------------------------
Amount of Debentures being purchased                        Date

                                    Dutchess Private Equities Fund  II, LP

                                By: /s/ Douglas H. Leighton
                                    -------------------------------------------
                                                (Signature)

                                    Name: Douglas Leighton
                                    -------------------------------------------
                                    (Please Type or Print)

                                    Title: Managing Member,
                                    Dutchess Capital Management, LLC;
                                    General Partner to:
                                    Dutchess Private Equities Fund, LP  and
                                    Dutchess Private Equities Fund  II, LP
                                    -------------------------------------------
                                                (Please Type or Print)

                                       28
<PAGE>

COMPANY ACCEPTANCE PAGE
-----------------------

This Subscription Agreement accepted and agreed to this 4th day of November,
2005.

By Hybrid Fuel  Systems,  Inc.  and duly  authorized  to sign on behalf of the
------------------------------
Company:

By  /s/ Mark Clancy
    --------------------------------
Mark Clancy, Chief Executive Officer

By /s/ John Stanton
------------------------------------

John Stanton, Chairman of the Board

                                       29
<PAGE>

LIST OF EXHIBITS
-----------------

EXHIBIT A               Notice of Conversion
EXHIBIT B               Debenture Registration Rights Agreement
EXHIBIT C               Debenture Agreement
EXHIBIT D               Opinion of Company's Counsel
EXHIBIT E               Board  Resolution   (included  as  Exhibit  4  on  the
                        Irrevocable Stock Transfer Agreement)

LIST OF SCHEDULES
-----------------

Schedule 3(a)                       Subsidiaries
Schedule 3(c)                       Capitalization
Schedule 3(e)                       Conflicts
Schedule 3(g)                       Material Changes
Schedule 3(h)                       Litigation
Schedule 3(l)                       Intellectual Property
Schedule 3(n)                       Liens
Schedule 3(t)                       Certain Transactions

                                       30
<PAGE>

                                  Exhibit A

                             NOTICE OF CONVERSION

(To be Executed by the Registered Owner in order to Convert Debenture)
TO: Hybrid Fuel Systems, Inc.

      The undersigned hereby irrevocably elects, as of ________________, to
convert $________________ of its convertible debenture (the "Debenture") into
Common Stock of Hybrid Fuel Systems, Inc. (the "Company") according to the
conditions set forth in the Debenture issued by the Company.

Date of Conversion
                  -------------------------------------------------------

Applicable Conversion Price
                           ----------------------------------------------

Number of Debentures Issuable upon this Conversion
                                                  -----------------------

Name(Print)   Dutchess Private Equities Fund, II,      LP
           --------------------------------------------------------------

Address              50 Commonwealth Ave, Boston, MA 02116
       ------------------------------------------------------------------

Phone     617-301-4700              Fax        617-249-0947
          ------------                         ------------

                        By:
                           ---------------------------------------

                                       31
<PAGE>

                    EXHIBIT D OPINION OF COMPANY'S COUNSEL

Holders of [Company] [Describe Securities]            _______________, 2005

Re:   Hybrid Fuel Systems, Inc.

Ladies and Gentlemen:

      As counsel to Hybrid Fuel Systems, Inc. (the "Company"), we are familiar
with its Articles of Incorporation and Bylaws and with the corporate proceedings
taken by it in connection with the proposed issuance and sale of convertible
debentures (the "Securities") pursuant to the related Subscription Agreement
(including all Exhibits and Appendices thereto) (collectively the "Agreements").

      We have been furnished with copies, certified or otherwise identified to
our satisfaction, of the Agreements, and have examined such other documents,
agreements and records as we deemed necessary to render the opinions set forth
below.

      In conducting our examination, we have assumed the following: (i) that
each of the Agreements has been executed by each of the parties thereto in the
same form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and accuracy
of all documents submitted to us as originals, and the conformity to originals
of all documents submitted to us as copies, (iii) that each of the Agreements
has been duly and validly authorized, executed and delivered by the party or
parties thereto other than the Company, and (iv) that each of the Agreements
constitutes the valid and binding agreement of the party or parties thereto
other than the Company, enforceable against such party or parties in accordance
with the Agreements' terms.

      Based upon the subject to the foregoing, we are of the opinion that:

      1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Nevada, and has all
requisite corporate power and authority to own its properties and conduct its
business as presently conducted.

      2. The authorized capital stock of the Company consists of _______ shares
of Common Stock, .001 par value per share, ("Common Stock").

      3. To our knowledge, (i)the Company's equity securities are not registered
under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and (ii) the Company is required to file reports
with the Securities and Exchange Commission pursuant to Section 15(d) of the
Exchange Act.;

                                       32
<PAGE>

      4. When duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities [and any Common Stock to be issued upon the conversion of the
Securities] as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;

      5 The Company has the requisite corporate power and authority to enter
into the Subscription Agreement and to sell and deliver the Securities and the
Common Stock to be issued upon the conversion of the Securities as described in
the Agreements; each of the Agreements has been duly and validly authorized by
all necessary corporate action by the Company to our knowledge, no approval of
any governmental or other body is required for the execution and delivery of
each of the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, public policy,
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other laws affecting creditors rights generally, and except as to compliance
with federal, state, and foreign securities laws, as to which no opinion is
expressed;

      6. To the best of our knowledge, the execution, delivery and performance
of the Subscription Agreement and Securities by the Company and the performance
of its obligations thereunder do not and will not constitute a breach or
violation of any of the terms and provisions of, or constitute a default under
or conflict with or violate any provision of (i) the Company's Certificate of
Incorporation or By-Laws, (ii) any indenture, mortgage, deed of trust, agreement
or other instrument to which the Company is party or by which it or any of its
property is bound, (iii) any applicable statute or regulation or as other, (iv)
or any judgment, decree or order of any court or governmental body having
jurisdiction over the Company or any of its property.

      7. To the best of our knowledge, there is no pending or threatened
litigation, investigation or other proceedings against the Company.

      8. The Company complies with the eligibility requirements for the use of
Form SB-2, under the Securities Act of 1933, as amended.

      This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of New York and the Nevada General Corporation Law and does not
include an interpretation or statement concerning the laws of any other state or
jurisdiction. Insofar as the enforceability of the Subscription Agreement and
Securities may be governed by the laws of other states, we have assumed that
such laws are identical in all respects to the laws of the State of New York.

                                       33
<PAGE>

      The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Subscription Agreement and
Securities and may not be relied upon by any other person or entity or for any
other purpose without our prior consent.

                                          Very truly yours,

                                          By:   _____________________

                                       34Exhibit
        10.05

      

      INNOVEST SYSTEMS,
        LLC

      ON-LINE
        SERVICES AGREEMENT

      

      
        	 	
                Client
                  Account
                  No

              

      

      This
        On-line
        Services Agreement
        (the
“Agreement”)
        is
        entered into as of June 1, 2005 (the “Effective
        Date”)
        by and
        between INNOVEST
        SYSTEMS, LLC,
        a New
        York limited liability company with its principal place of business at 74
        Trinity Place, Eighteenth Floor, New York, NY 10006 (“Provider”),
        and
PINNACLE
        TRUST CO., LTA,
        with
        its principal place of business at 4265 San Felipe, Suite 900, Houston, TX
        77027
        (“Client”).

      

      Now,
        Therefore, the
        parties agree as follows:

      

      1. Definitions.
        For
        purposes of this Agreement:

      

      1.1 “Applications”
        means
        the software applications set forth on Exhibit A or otherwise made available
        by
        Provider for use by Client under the terms of this Agreement.

      

      1.2 “Confidential
        Information”
        means
        any information, whether disclosed orally, in writing, electronically, visually
        or otherwise disclosed by one party (the “Disclosing
        Party”)
        to the
        other (the “Recipient”)
        in
        connection with this Agreement, including without limitation, the Applications,
        Documentation, User Information, User IDs, business plans, customers,
        technology, products and all other information relating to the provision
        of the
        Services or the Disclosing Party’s financial condition, operations, or business.

      

      1.3  “Client
        Page”
        means
        the page of the Provider Web Site through which Client shall access the
        Applications.

      

      1.4 “Documentation”
        means
        the published user manuals (whether in print or electronic form) that relate
        to
        the use of the Service or the Applications and that have been provided whether
        directly or through the Provider Web Site by Provider to Client hereunder.
        

      

      1.5 “Intellectual
        Property Rights” collectively
        means any and all worldwide rights, title and interest (including, all patent,
        patent registration, business processes, copyright, data right, trademark,
        trade
        name, service mark, service name, trade secret, know-how or other similar
        right
        arising or enforceable under U.S. law, foreign law, or international treaty
        regime) in any system, medium or content, including, without limitation,
        designs, masks, circuit boards, micro chips, microprocessors, architectures,
        prototypes, databases, text, graphics, photographs, print, pictures, software,
        CD-ROM, database tapes, source and object codes, microcode, or any other
        form of
        technology or embodiment thereof.

      

      1.6 “Named
        User”
        means an
        employee of Client who has been issued a User I.D. in accordance with Section
        3.3(a).

      

      1.7  “Service”
        shall
        mean the provision of the Web-based hosting of the Applications and User
        Information in accordance with the terms of this Agreement.

      

      1.8 “Provider
        Web Site”
        means
        the site on the World Wide Web (the “Web”)
        located
        at Universal Resource Locator https://secure5.innovestsystems.com/pinnacletrust
        through which Provider shall provide the Service to Client under the terms
        of
        this Agreement.

      

      1.9 “User
        Information”
        means
        personally identifiable data entered by and collected from Named Users while
        accessing the Applications and hosted by Provider or its Web Host. 

      

      1.10 “Web
        Host”
        means
        the third party provider who is in the business of providing web site hosting
        of
        Internet data centers and facilities to Provider with respect to the Provider
        Web Site. 

      

      2. Services.
        Provider
        shall provide the Service to Client through its Named Users. Provider through
        its Web Host shall host and provide access to the Client Page in substantially
        the same manner and to the same standards (e.g., up time and response time)
        as
        Provider through its Web Host hosts and provides access to the Provider Web
        Site. Client may elect to use an alternate private network (other than the
        Internet) to access the Client Web Page on the Provider Web Site. Any
        network-specific costs arising out of Client’s election to use any network
        (other than the Internet) shall be borne by Client. In such event, the parties
        shall discuss in good faith the method and manner in which such network
        connectivity shall be accomplished in accordance with a mutually agreed upon
        project plan. Client specifically acknowledges that certain aspects of the
        Service are provided or controlled by third parties. At times, actions or
        inactions caused by third parties can produce situations in which connections
        to
        the Service may be impaired or disrupted. Although Provider will use
        commercially reasonable efforts to take any actions that it deems appropriate
        to
        remedy and avoid such events in accordance with Section 10; however, Provider
        cannot guarantee that they will not occur. Provider shall be solely responsible
        for the selection of, on-going relationship with, and compensation due to
        the
        Web Host for the provision of the Services to Client. Any obligations performed
        by the Web Host shall be treated as performed by Provider for purposes of
        this
        Agreement. 

      

      
        
           

        

        
          -31-

          
            

          

        

        
           

        

      

      3. Deployment,
        Access, Use and Support of the Service. 

      

      3.1 Deployment
        of the Service.
        Provider
        shall use commercially reasonable efforts to undertake and perform the services
        reasonably necessary to deploy,
        set-up, or otherwise configure the
        Client Page of the Provider Web Site and the Applications to function and
        perform the Service for Client,
        as set
        forth
        in a mutually agreed upon project plan. Client agrees to cooperate with Provider
        in the performance of the Services and to provide Provider with all necessary
        files and other information and assistance required for Provider to render
        the
        Services. 

      

      3.2 Access
        to the Service. 

      

      (a) License
        to Access the Service.
        Provider
        hereby grants to Client a nonexclusive, non-sublicensable, non-transferable
        (except in accordance with Section 14.2), license to execute the
        Applications solely from the Client Page of the Provider Web Site solely
        for
        Client’s internal business purposes during the Term. Client, through its Named
        Users, may access the Service and execute the Applications only as permitted
        by
        this Agreement. Client acknowledges and agrees that any breach of this Agreement
        by a Named User or any other employee, agent or contractor of Client shall
        be
        deemed a breach of this Agreement by Client. Client shall make no attempt
        to,
        and shall not permit any Named User to make any attempt to: (a) download,
        reproduce, copy, alter, adapt, modify, improve, translate, create derivative
        works from, reverse engineer, disassemble, decompile or otherwise attempt
        to
        reveal the trade secrets or know how underlying the Applications and/or the
        Service; (b) interfere in any manner with the hosting of the Applications
        and/or
        the Service associated therewith; or (c) sublicense, resell, sublease or
        transfer any of Client’s rights under this Agreement or otherwise use the
        Service or Applications for the benefit of a third party or to develop a
        product
        that is similar to the Applications or to operate a service bureau. 

      

      (b) Necessary
        Equipment; Cooperation.
        Client
        shall be solely responsible, at its own expense, for acquiring, installing
        and
        maintaining all connectivity equipment, hardware, software and other equipment
        as may be necessary for it and its Named Users to connect to, access, and
        use
        the Client Page of the Provider Web Site and the Service, including, without
        limitation, the Minimum Configuration set forth in Exhibit A. 

      

      (c) ISP
        Connectivity.
        Client
        shall provide its own connection to the Internet through one or more Internet
        Service Providers’ of its choice, and Client shall be solely responsible for all
        telephone and other charges incurred by Client to obtain Internet connectivity
        to the Service. 

      

      (d) Compliance.
        Client
        agrees to comply with all laws, rules, regulations, orders, decrees, judgments
        and other governmental acts of the United States and any other state or country
        with jurisdiction over Client, or Client's activities (or those of its
        affiliates or Named Users) in the use of the Service and the performance
        of its
        obligations under this Agreement. 

      

      3.3 Use
        of the Service. 

      

      (a) Security.
        Each
        Named User will be assigned a unique Named User identification name and password
        for access to and use of the Service (“Named
        User ID”).
        A User
        ID allows the Named User to access the Applications and to enter, change
        or
        delete User Information. Client shall be responsible for ensuring the security
        and confidentiality of all Named User IDs. Client acknowledges that it will
        be
        fully responsible for all liabilities incurred through use of any Named User
        ID
        (whether lawful or unlawful) and that any transactions completed under a
        Named
        User ID will be deemed to have been lawfully completed by Client. Client
        shall
        initially access the Applications solely through the Named Users set forth
        on
Exhibit
        B.
        Client
        shall update Exhibit
        B
        in
        writing from time to time such that Exhibit
        B
        is
        current and accurate and reflects the users actually accessing the Applications
        through the Service. In no event will Provider be liable in any way for the
        foregoing obligations or the failure by Client to fulfill such obligations.
        Both
        parties acknowledge that all publicly available networks are inherently
        insecure. Provider will use commercially reasonable efforts to implement
        and
        deploy reasonable security features, procedures and technologies that will,
        in
        Provider’s reasonable judgement, provide sufficient protection to data hosted in
        connection with the Service from unauthorized access. 

      

      
        
           

        

        
          -32-

          
            

          

        

        
           

        

      

      (b) User
        Information.
        Client
        and its Named Users will be solely responsible for providing all User
        Information. Client grants to Provider all necessary licenses in and to any
        Intellectual Property Rights embodied in such User Information necessary
        for
        Provider to provide the Service for Client. Provider will use User Information
        only to the extent necessary to perform the Service under this Agreement,
        provide maintenance, administration, monitoring and capacity planning of
        the
        system, or to fulfill authorized requests from the Client. Client shall not,
        and
        shall not permit any Named User to, provide User Information that: (a) infringes
        or violates any intellectual property rights, publicity/privacy rights, law
        or
        regulation, or is defamatory; (b) contains any viruses or programming routines
        intended to damage, surreptitiously intercept or expropriate any system,
        data or
        personal information; or (c) is materially false or misleading. Provider
        may
        take remedial action if User Information violates this Section 3.3(b); provided,
        however, Provider is under no obligation to review User Information for accuracy
        or potential liability. 

      

      (c) Data
        Backup.
        Provider
        shall adhere to standard information services industry practices by maintaining
        back-up copies of Client’s User Information to allow for recovery in the event
        of loss, corruption or other similar event or circumstances that may occur
        in
        the process of performing the Services under this Agreement.

      

      (d) Data
        Retention.
        Subject
        to Section 9.3, Client agrees that Provider’s obligation to maintain any
        User Information obtained in the course of performance of the Service shall
        not
        extend beyond the later of any termination or non-renewal of this
        Agreement.

      

      3.4 Maintenance
        and Support of the Service.
        Provider
        will make available to Client as part of the Service, and at no additional
        charge, any upgrade or update to the Applications when Provider makes them
        generally available in the marketplace. In addition and at no additional
        charge,
        Provider will provide telephone and email technical support (at the levels
        set
        forth in Exhibit
        A)
        related
        to access to and use of the Applications during Provider’s normal business
        hours. For purposes of this Agreement, “Normal Business Hours” means the times
        set forth in Exhibit
        A.

      

      4. Training.
        Provider
        agrees to undertake and perform the training services set forth in Exhibit
        A
        (“Training
        Services”).
        

      

      5. Fees
        and Payment.
        In
        consideration of the rights and services provided to Client under this
        Agreement, Client shall pay Provider the fees set forth in Exhibit
        C
        (“Schedule of Fees and Terms of Payment”) when due. Provider reserves the right
        to suspend the Service and access to the Applications in the case any fees
        payable under Exhibit
        C
        are more
        than thirty (30) days overdue. 

      

      6. Confidentiality.
        The
        Recipient agrees that, at all times during the Term of this Agreement and
        after
        its termination, it shall keep in strict confidence and trust all Confidential
        Information created and/or developed by the Disclosing Party, and it will
        not,
        nor permit any other person or entity to, disclose, copy, reproduce, transmit
        or
        otherwise use the Disclosing Party’s Confidential Information, except as
        expressly authorized by this Agreement or the written consent of the Disclosing
        Party and to the extent necessary for performance of this Agreement. Each
        Recipient shall make all commercially reasonable efforts to maintain the
        confidentiality of the Disclosing Party’s Confidential Information and in no
        event shall the Recipient use a lesser standard of care than that which it
        uses
        to safeguard the confidentiality of its own confidential information. Each
        Recipient agrees that it will disclose Confidential Information only to those
        of
        its employees and contractors who need to know such information and who have
        previously agreed to be bound by the non-disclosure terms and conditions
        of this
        Agreement or a similar non-disclosure agreement. However, the Recipient bears
        no
        responsibility for safeguarding the Confidential Information of the Disclosing
        Party that Recipient can show is: (i) publicly available prior to disclosure;
        (ii) already in the Recipient’s possession and not subject to an obligation of
        confidentiality; (iii) obtained by the Recipient from a third party without
        restrictions on disclosure; or (iv) entirely independently developed by the
        Recipient without any reference to the Confidential Information of the
        Disclosing Party. The foregoing prohibition on disclosure of Confidential
        Information shall not apply to the extent certain Confidential Information
        is
        required to be disclosed by the Recipient by order of a court or as a matter
        of
        law, including, without limitation, any voluntary filing under the Securities
        Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
        provided that the Recipient uses reasonable efforts to provide the Disclosing
        Party with prior notice of such obligation to disclose and either reasonably
        assists in obtaining a protective order therefor or reasonably considers
        any
        requests for confidential treatment of such Confidential Information by the
        Disclosing Party.

      

      
        
           

        

        
          -33-

          
            

          

        

        
           

        

      

      7. Ownership.
        

      

      7.1 Client.
        Subject
        to the licenses granted herein, Client retains all worldwide right, title
        and
        interest in and to the Intellectual Property Rights embodied in the User
        Information and Client’s Confidential Information. 

      

      7.2 Provider.
        Subject
        to the limited license set forth in Section 3.2(a), Provider and its
        licensors retain all worldwide right, title and interest in and to all
        Intellectual Property Rights embodied in all software, materials and Provider
        Confidential Information made available to Client via the Internet or otherwise,
        in connection with the Service, including without limitation, the Applications
        (both object and source code), Documentation, and any and all improvements,
        derivative works, updates, and modifications thereto, whether or not made
        in
        conjunction with this Agreement. 

      

      8. Data
        Collection.
        Provider
        shall have the right to utilize data capture, syndication, and analysis tools,
        and other similar tools, to extract, compile, synthesize, and analyze any
        non-personally identifiable data or information resulting from Client’s use of
        the Service and Applications (“Blind
        Data”).
        To the
        extent that any Blind Data is collected by Provider, such Blind Data shall
        be
        solely owned by Provider and may be used by Provider for any lawful business
        purpose without a duty of accounting to Client, provided that the Blind Data
        is
        used only in an aggregated form, without specifically identifying the source
        of
        the Blind Data. 

      

      
        9.
          Term
          and Termination. 

      

      

      9.1 Term.
        Unless
        earlier terminated as provided below, this Agreement shall commence as of
        the
        Effective Date and remain in effect for a period of five (5) years (“Initial
        Term”).
        The
        Initial Term shall be automatically renewed for successive one (1) year periods
        (“Renewal
        Terms”),
        unless
        either party indicates its intention not to renew the Agreement prior to
        ninety
        (90) days prior to the end of the Initial Term or any Renewal Term, as the
        case
        may be. The Initial Term and any Renewal Term shall be collectively referred
        to
        as the “Term.”Upon
        renewal, the fees for the Service shall be adjusted as described in Exhibit
        C.

      

      9.2 Termination
        For Cause. This
        Agreement may be terminated at any time during the Term immediately by either
        party: (i) upon the breach by the other party of any of such other
        party’s
        obligations hereunder, which breach has not been cured within thirty (30)
        days
        after the breaching party has received written notice thereof; (ii) if
        all
        or a substantial portion of the assets of the other party are transferred
        to an
        assignee for the benefit of creditors, to a receiver or to a trustee in
        bankruptcy, a proceeding is commenced by or against the other party for relief
        under bankruptcy or similar laws and such proceeding is not dismissed within
        sixty (60) days, or the other party is adjudged bankrupt; or (iii) upon
        written notice if Client (a) fails to make the payments specified under Section
        5 when due for a second time in any calendar year or (b) violates the
        restrictions in Sections 3, 6 or 7. Upon any termination of this Agreement
        by
        Provider due to breach by Client, Client shall pay Provider 50% of the then
        remaining base fees due in the Initial Term or any applicable Renewal
        Term.

      

      9.3 Effect
        of Termination. Upon
        termination of this Agreement for any reason, any amounts owed to Provider
        under
        this Agreement before such termination will be immediately due and payable,
        all
        licenses granted herein shall immediately terminate, and each party shall
        return
        to the other, or purge from its electronic or other storage facilities or
        records, all property (including any Confidential Information) of the other
        party in its possession or control. Except as provided for in Exhibit D of
        the
        Agreement, Provider will promptly cease performing the Service and all Client
        and Named User access to the Service shall be immediately suspended. Provider
        will discontinue all use of the User Information and, subject to the terms
        of
        this Section 9.3, destroy all copies thereof in its possession. Client may
        request at any time and receive from Provider, within five (5) days of such
        request, a text file copy of all User Information (but not including
        Applications) in a CD-ROM or other format reasonably acceptable to Client
        and in
        an “as is and with all faults” condition. Provider shall be permitted to keep a
        backup copy of such User Information, which shall be destroyed upon confirmation
        of the receipt by Client of the CD-ROM or other format described in the
        preceding sentence and in any event one week after such CD-ROM is shipped
        to
        Client by Provider. Provider, at its sole discretion, may refuse any requests
        from Client to modify, edit or alter the User Information. The following
        Sections shall survive the termination or expiration of this Agreement: 1,
        6, 7,
        8, this 9.3, 10, 11, 12, 13 and 14 (to the extent applicable to such Sections).
        

      

      
        
           

        

        
          -34-

          
            

          

        

        
           

        

      

      10. Limited
        Warranty. Provider
        will use commercially reasonable efforts to perform the Service in a
        professional and workmanlike manner. The Applications shall perform
        substantially in accordance with their intended purpose as set forth in the
        Documentation. Notwithstanding the foregoing, Provider makes no representation
        as to the interoperability of the Applications or Service with any third
        parties’ systems. Under no circumstances will Provider be liable for any damage
        or loss resulting from a cause over which Provider does not have control,
        including, without limitation, failure of electronic or mechanical equipment
        or
        communications lines, telephone or other interconnect problems, general
        inoperability of the internet, unauthorized access, theft, operator error,
        severe weather, earthquakes, and strikes or other labor problems. Provider’s
        sole obligation, and Client’s exclusive remedy, for any failure, defect,
        inaccuracy or interruption in the Service, or breach by Provider of the limited
        warranty set forth in this Section 10, shall be that Provider will
        use
        commercially reasonable efforts to restore the Service and access to the
        Applications as soon as reasonably possible and/or to cure such breach. If
        in
        Provider’s sole judgment, restoring access and/or curing such breach is not
        commercially feasible, Provider may credit Client for Service Fees (as defined
        in Exhibit
        C)
        during
        the affected period of time, in proportion to the extent such Service was
        impaired, and may thereafter cancel this Agreement without further obligation
        or
        liability to Client. 

      

      11. Disclaimer.
        Except
        as expressly set forth in Section 10 or Exhibit
        D,
        the
        Applications, Documentation, Service, and all other data and materials made
        available via the internet or otherwise provided to Client in connection
        with
        this Agreement by Provider and its suppliers are provided “AS IS” and “AS
        AVAILABLE,” without representations or warranties of any kind. PROVIDER AND ITS
        SUPPLIERS MAKE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW
        OR
        OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF QUIET
        ENJOYMENT, NON-INFRINGEMENT, OR ANY IMPLIED WARRANTIES ARISING OUT OF COURSE
        OF
        PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE. PROVIDER DOES NOT WARRANT
        THAT
        THE SERVICES WILL BE PROVIDED ERROR-FREE, UNINTERRUPTED, SECURE, OR VIRUS-FREE.
        WITHOUT
        LIMITING THE FOREGOING, PROVIDER MAKES NO REPRESENTATION OR WARRANTIES OF
        ANY
        KIND WITH RESPECT TO THE THIRD PARTY COMPONENTS OF THE APPLICATIONS OR SERVICES.
        TO THE EXTENT PROVIDER MAY NOT AS A MATTER OF LAW DISCLAIM ANY WARRANTY,
        THE
        PARTIES AGREE THAT THE SCOPE AND DURATION OF ANY SUCH WARRANTY SHALL BE THE
        MINIMUM PERMITTED UNDER APPLICABLE LAW. Neither
        Provider, nor its third-party service or software providers, shall have any
        liability whatsoever for the accuracy, completeness, or timeliness of the
        User
        Information, or for any decision made or action taken by Client in reliance
        upon
        any User Information. The parties agree and acknowledge that Provider shall
        in
        no event be held responsible for any problems with the Service attributable
        to
        the public Internet infrastructure or Client’s ability to be connected to the
        Internet. 

      

      12. LIMITATION
        OF LIABILITY. 

      

      12.1 EXCEPT
        FOR LIABILITY DUE TO BREACH OF SECTION 6 OR LIABILITY UNDER SECTION 13,
        NEITHER PARTY (OR PROVIDER’S SUPPLIERS) WILL BE LIABLE FOR SPECIAL, INCIDENTAL,
        DIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS
        AGREEMENT INCLUDING, BUT NOT LIMITED TO, DAMAGES THAT RESULT FROM INTERRUPTED
        COMMUNICATIONS, LOST DATA, OR LOST PROFITS, OR DAMAGES THAT RESULT FROM
        INCONVENIENCE, DELAY OR LOSS OF USE OF ANY INFORMATION OR DATA OR OF THE
        APPLICATIONS OR SERVICE, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY
        OF SUCH DAMAGES, AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF
        ANY
        LIMITED REMEDY HEREIN. 

      

      
        
           

        

        
          -35-

          
            

          

        

        
           

        

      

      12.2 Except
        for liability due to claims arising from breach of Section 6, or liability
        under
        Section 13, neither party’s liability related to this Agreement shall
        exceed the amounts actually paid to Provider by Client in the twelve (12)
        month
        period immediately preceding liability hereunder. 

      

      12.3 Client
        acknowledges that Provider has set its prices and entered into this Agreement
        in
        reliance upon the limitations of liability and the disclaimers of warranties
        and
        limitations on damages set forth in this Agreement, and that the same form
        an
        essential basis on the bargain between parties. The parties agree that the
        limitations and exclusions of liability and disclaimers specified in this
        Agreement will survive and apply even if found to have failed of their essential
        purpose.

      

      
        13.
          Indemnity.
          

      

      

      13.1 By
        Provider. Subject
        to the provisions of Section 12.1, Provider shall defend, indemnify
        and
        hold harmless Client, its officers, directors, employees, agents and
        representatives against any losses, costs damages, liabilities and expenses
        (including, without limitation, reasonable attorneys’ fees) arising from third
        party claims that the Service (or Client’s use thereof) infringes any patent,
        copyright, trademark, trade secret or other proprietary right or right of
        confidentiality of any third party. Provider’s obligation shall not extend to a
        claim based on any alleged infringement arising from any: (a) third
        party
        component of the Service; (b) additions, changes or modifications
        to any
        Application by or on behalf of Client; (c) incorporation of the Service or
        any
        Application or any component thereof into any other product or process; or
        (d)
        use of the Service or any Application other than as permitted by this Agreement.
        Should the Service or any Application become, or in Provider’s opinion be likely
        to become, the subject of any such suit or action for infringement or if
        Client
        is enjoined from using the Service, Provider shall, at Provider’s option and
        expense, procure for Client the right to continue using the Service or component
        thereof, or replace or modify such Service or component thereof, so that
        it
        becomes non-infringing. If in Provider’s sole judgment, such procurement,
        replacement or modification is not commercially feasible; Provider may cancel
        this Agreement subject to damages caused to Client; such damages not to exceed
        the amounts actually paid to Provider by Client in the twelve (12) month
        period
        immediately preceding liability hereunder. This Section states Provider’s entire
        liability for infringement claims relating to the Service or any Application.
        This Section 13.1 states Provider’s sole liability and Client’s sole remedy
        for any infringement claims.

      

      13.2 
        By Client.
        Subject
        to the provisions of Section 12.1, Client shall defend, indemnify and hold
        harmless Provider, its officers, directors, employees, agents and
        representatives from and against any and all losses, costs, damages, liabilities
        or expenses (including, without limitation, reasonable attorney’s fees) incurred
        or arising from any claim by a third party arising out of: (i) breach of
        this
        Agreement by Client; and (ii) User Information.

      

      13.3 
        Procedure. The
        indemnifying party’s indemnification obligations under this Section are
        conditioned upon the indemnified party: (a) giving prompt notice of the claim
        to
        the indemnifying party; (b) granting sole control of the defense or settlement
        of the claim or action to the indemnifying party (except that the indemnified
        party’s prior written approval will be required for any settlement that
        reasonably can be expected to require a material affirmative obligation of
        or,
        result in any ongoing material liability to the indemnified party); and (c)
        providing reasonable cooperation to the indemnifying party and, at the
        indemnifying party’s request and expense, assistance in the defense or
        settlement of the claim. 

      

      
        14.
          GENERAL
          PROVISIONS.

      

      

      14.1 
        Independent Contractors.
        Provider
        shall perform the Services as an independent contractor, and nothing contained
        in this Agreement shall be construed to create or imply a partnership,
        principal-agent or employment relationship between the parties. Neither party
        shall take any action or permit any action to be taken on its behalf which
        purports to be done in the name of or on behalf of the other party and shall
        have no power or authority to bind the other party or to assume or create
        any
        obligation or responsibility, express or implied, on the other party’s behalf or
        in its name, nor shall such party represent to any one that it has such power
        or
        authority.

      

      
        
           

        

        
          -36-

          
            

          

        

        
           

        

      

      14.2  Assignment.
        Client
        shall not assign, delegate, or subcontract any portion of its rights, duties,
        or
        obligations under this Agreement without the prior written consent of Provider,
        which such consent shall not be unreasonably withheld, and any attempt to
        do so
        shall be void. Notwithstanding the preceding sentence, Client may assign
        its
        rights under this Agreement to its affiliate, with notice to, but without
        the
        prior consent of, Provider; provided that Client remains obligated under
        the
        terms of this Agreement. Client agrees that Provider may subcontract certain
        of
        the Services to be performed in connection with this Agreement; provided
        that
        any such subcontracting arrangement will not relieve Provider of any of its
        obligations hereunder. In addition, Provider may assign this Agreement,
        including its rights and duties hereunder. 

      

      14.3 
        Compliance With Laws. Client
        represents and warrants that it will comply with all applicable federal,
        state,
        and local laws and regulations, and communications common carrier tariffs,
        and
        use the Service solely for lawful purposes. Provider reserves the right to
        take
        all actions, including termination of the Service, which it believes necessary
        to comply with applicable laws, regulations, and tariffs. Provider agrees
        to
        provide service that is compliant with applicable State and Federal laws
        and
        regulations. 

      

      14.4 
        Entire Agreement; Waiver.
        The
        parties agree that the terms set forth in Exhibit
        D
        attached
        to this Agreement shall be in addition to, and if so specified in Exhibit
        D in
        lieu
        of, those terms set forth in this Agreement. This Agreement, Exhibits A,
        B, C,
        and D attached hereto, and any Deployment Plan related to this Agreement
        sets
        forth the entire understanding and agreement of the parties, and supersedes
        any
        and all prior or contemporaneous oral or written agreements or understandings
        between the parties, as to the subject matter of the Agreement. This Agreement
        may be amended, modified or changed only by a writing signed by both parties.
        The waiver of a breach of any provision of this Agreement will not operate
        or be
        interpreted as a waiver of any other or subsequent breach.

      

      14.5 
        Force Majeure.  If
        performance hereunder (other than payment) is interfered with by any condition
        beyond a party’s reasonable control, the affected party, upon giving prompt
        notice to the other party, shall be excused from such performance to the
        extent
        of such condition. Each party acknowledges that web site operations may be
        affected by numerous factors outside of a party’s control.

      

      14.6 Governing
        Law.
        This
        Agreement will for all purposes be solely and exclusively governed, construed
        and enforced in accordance with the laws of the State of New York (without
        regard to the conflicts of law provisions thereof other than Section 5-1401
        of
        New York's General Obligations Law). Both parties submit to personal
        jurisdiction in the federal and state courts located in New York County,
        State
        of New York, and further agree that any and all claims and controversies
        arising
        out of this Agreement that cannot be amicably resolved by the parties shall
        be
        brought solely and exclusively in a court in New York County, State of New
        York.

      

      14.7 No
        Implied Licenses. There
        are
        no implied licenses under this Agreement, and any rights not expressly granted
        hereunder are reserved. Neither party shall exceed the scope of the licenses
        granted hereunder. 

      

      14.8 Notice.
        Any
        notice under this Agreement will be in writing and delivered by personal
        delivery, overnight courier, confirmed facsimile, confirmed email, or certified
        or registered mail, return receipt requested, and will be deemed given upon
        personal delivery, one (1) day after deposit with an overnight courier, five
        (5)
        days after deposit in the mail, or upon confirmation of receipt of facsimile
        or
        email. Notices will be sent to a party at its address set forth on the first
        page of this Agreement or such other address as that party may specify in
        writing pursuant to this section.

      

      14.9 Severability.
        If
        any
        provision herein is held to be invalid or unenforceable for any reason, the
        remaining provisions will continue in full force without being impaired or
        invalidated in any way. The parties agree to replace any invalid provision
        with
        a valid provision that most closely approximates the intent and economic
        effect
        of the invalid provision. 

      

      [THIS
        SPACE INTENTIONALLY LEFT BLANK]

      
        
           

        

        
          -37-

          
            

          

        

        
           

        

      

      

      Authorized
        representatives of Client and Provider have read the foregoing and all documents
        incorporated therein and agree and accept such terms effective as of the
        date
        first above written.

      

      Client:

      

      Pinnacle
        Trust Co., LTA

      

      Signature:
        /s/
        LINDA HALCOMB         

      

      Print
        Name: Linda
        Halcomb                   
         

      

      Title:
        Director
        -
        Operations                  
           

      

      Date:
        May
        27,
        2005                               
          

      

      Provider:

      

      INNOVEST
        SYSTEMS, LLC

      

      Signature:
        /s/
        W.
        THOMAS                
         

      

      Print
        Name: W.
        Thomas                       
         

      

      Title:
        Chief
        Executive
        Officer                

      

      Date:
        May
        27,
        2005                               
         

      
        
           

        

        
          -38-

          
            

          

        

        
           

          
          

        

      

      EXHIBIT
        A

      APPLICATIONS

      

      SOFTWARE:

      

      InnoTrust
        Trust Accounting & Reporting System.

      

      

      DOCUMENTATION:

      

      InnoTrust
        User Manual

      

      

      MINIMUM
        CONFIGURATION:

      

      Microsoft
        Internet Explorer version 5.5 or higher and access to the public
        Internet.

      

      

      NORMAL
        BUSINESS HOURS:

      

      For
        purposes of this Agreement, “normal business hours” means Monday through Friday
        from 7:00 a.m. to 7:00 p.m., Eastern Standard Time, excluding holidays observed
        by the closing of the Federal Reserve Banks and Branches (as set forth on
        the
        -Federal Reserve Board’s Web Site at - http://www.ny.frb.org/welcome.html,
        as
        updated from time to time.

      

      

      TRAINING:

      

      1.
        3-day
        InnoTrust training session.

      2.
        3-day
        pre-production walkthrough

      3.
        Training, as reasonably required, specific to any particular application
        or
        service upgrade.

      

      

      TECHNICAL
        SUPPORT:

      

      Provider
        will provide a contact for requests for inquiries related to the Service
        (the
“Help Desk”.) During Normal Business Hours, the Help Desk will be accessible via
        a toll-free number and will be the primary means of support for systems and
        service related issues encountered by Client. Any calls received by the Help
        Desk during Normal Business Hours will be returned within 30 minutes of
        receiving such call. During hours other than Normal Business Hours, Provider
        will provide a pager number and/or a cellular phone number for Client’s use.
        Calls received during hours other than Normal Business Hours by the Help
        Desk
        will be returned within 2 hours of Provider’s receiving such call.

      
        
           

        

        
          -39-

          
            

          

        

        
           

        

      

      

      EXHIBIT
        B

      NAMED
        USERS

      

      To
        be
        determined.

      

      
        
           

        

        
          -40-

          
            

          

        

        
           

        

      

      EXHIBIT
        C

      

      SCHEDULE
        OF FEES AND TERMS OF PAYMENT

      

      Client
        agrees to pay to Provider the Base Fees and Asset Fees with respect to the
        Service, as follows:

      

      The
        total
        fee comprises a base service fee per annum (the “Base Fee”), plus a variable
        basis point fee (the “Asset Fee”) assessed on the dollar amount of assets under
        Client’s administration (the “Asset Base”). Client shall pay all sales and use
        or similar taxes.

      

      
        	 	
                §

              	
                The
                  Base Fee will be $6,250 per month.

              

      

      

      
        	 	
                §

              	
                The
                  Asset Fee will be waived
                  on
                  the first $ 1 billion of assets under administration. In the event
                  assets
                  held on the system exceed $1 billion in market value, 1 basis point
                  for
                  such assets in excess of $1
                  billion.

              

      

      

      The
        Base
        Fee and any Asset Fee are payable in 12 monthly installments, each installment
        equal to 1/12 of the then applicable fees as calculated per above, on the
        15th
        day of
        each calendar month, (or the succeeding business day if such 15th
        day
        falls on a weekend or holiday as observed by the closing of the Federal Wire
        Transfer System).

      

      For
        purposes of determining the Asset Fee, the Asset Base will be measured on
        the
        1st
        business
        day of each calendar quarter and the Asset Fee shall remain constant until
        the
        Asset Base is re-measured at the beginning of the following calendar
        quarter.

      

      In
        addition to the annual fee, Provider will charge a one-time implementation
        fee.
        Implementation expenses will be billed at $1,000 per day.

      

      
        	 	
                §

              	
                Provider
                  estimates the implementation fee will not exceed
                  $65,000.

              

      

      

      Provider
        will pass-through to Client the cost of obtaining securities pricing, corporate
        action announcements, the printing and mailing of customer statements, and
        other
        charges imposed by third party service vendors (e.g. tax reporting
        providers).

      
        
           

        

        
          -41-

          
            

          

        

        
           

        

      

      EXHIBIT
        D

      

      ADDITIONAL
        TERMS

      

      This
        Exhibit
        D sets
        forth those terms that are in addition to, and if so specified in this
Exhibit
        D
        in lieu
        of, the terms set forth in the body of this Agreement, as follows:

      

      A. Data
        Backup. Clients’
        User Information will be backed-up nightly to tape. Tape backups will be
        moved
        to a secure offsite storage facility one day after their creation. Tape backups
        will be kept on site for one day to provide for their immediate retrieval
        in
        order to effect recovery of Client User Information in the even of loss,
        corruption or other similar event or circumstances. Backups will be sent
        to no
        less than two offsite locales.

      

      B.
         Rights
        At Termination.
        In
        addition to the rights and obligations upon termination set forth in Section
        9.3, the parties agree that, in the event of termination or expiration of
        this
        Agreement for any reason, and upon the request of Client, Provider shall
        be
        obligated to cooperate with Client in effecting the orderly transfer of any
        User
        Information to a third party designated by Client (the “Termination
        Assistance”). Termination Assistance will be provided for ninety (90) days prior
        to and up to thirty (30) days after the date of expiration or termination
        at
        Provider’s standard consulting rates.

      

      C. Source
        Code Escrow. Provider
        and Client agree that, at Client’s request and expense, promptly after execution
        of this Agreement by the parties, Provider and Client shall enter into a
        source
        code escrow agreement (“Escrow Agreement”) with DSI Technology Escrow
        International (“Escrow Agent”) whereby Provider will promptly deposit the Source
        Code with Escrow Agent (“Source Code Deposit”). The Escrow Agreement shall
        provide that the Source Code Deposit shall be updated periodically during
        the
        term of the Agreement if and when Provider makes available to Client any
        updates
        or upgrades to the Applications. The Escrow Agreement shall provide that
        in the
        event that either (i) Provider ceases to do business involving the Service
        or
        the Applications in the ordinary course or (ii) Provider files a petition
        or is
        the subject of an involuntary petition under the U.S. Bankruptcy Act or any
        state insolvency law that is not dismissed within ninety (90) days of filing
        that in either case would result in the liquidation of Provider (i.e.: Chapter
        7
        or conversion to Chapter 7), Client may request in writing that Escrow Agent
        release the Source Code Deposit to Client. Client may only use the Source
        Code
        Deposit to generate and install executable code of the Applications on equipment
        under Client’s direct control and permit access to such Application (in
        executable code only) by the Named Users for the remainder of the Term of
        this
        Agreement in accordance with the terms and conditions of this Agreement.
        Upon
        execution, the Escrow Agreement shall remain in effect for a period co-terminus
        with this Agreement. For purposes of this Exhibit
        D,
        "Source
        Code" means (a) one (1) printed copy of a listing of the source language
        code
        (human-readable program instructions) for the then current version of the
        Applications; (ii) one (1) copy on magnetic medium of the source language
        code
        for the then current version of the Applications; and (iii) any readily
        available documentation (technical or otherwise) that would enable a reasonably
        skilled computer programmer or analyst of Client to maintain and support
        the
        then current version of the Applications without the aid of Provider.

      

      D. Service
        Level Agreement. 

      

      In
        lieu
        of the warranty set forth in Section 10, Provider and Client agree to the
        following service level agreement (“SLA”):

      

      
        	
                1.

              	
                Definitions.
                  The following definitions shall apply to this
                  SLA:

              

      

      
        	 	
                a)

              	
                “ASP
                  Equipment” means the hardware in the Direct Control of Provider that is
                  used to provide the Service via Provider’s Web
                  Site.

              

      

      
        	 	
                b)

              	
                “Direct
                  Control” means within the sole possession of a party, with attendant
                  rights to control or manage. 

              

      

      
        
           

        

        
          -42-

          
            

          

        

        
           

        

      

      

      
        	 	
                c)

              	
                “Normal
                  Business Hours” means the times set forth in Exhibit
                  A
                  to
                  the Agreement.

              

      

      
        	 	
                d)

              	
                “System”
                  means the ASP Equipment, Applications and Third-Party Components
                  within
                  the Direct Control of Provider.

              

      

      
        	 	
                e)

              	
                “Third-Party
                  Components” means the (i) third-party wireless communications and landline
                  communications technology, (ii) third-party equipment, software
                  and
                  services, and (iii) items within the public domain used by Provider
                  in
                  providing the Services.

              

      

      

      All
        other
        definitions used in this SLA shall have the meaning as set forth in the
        Agreement. 

      

      
        	
                2.

              	
                Routine
                  Maintenance.
                  Provider will use commercially reasonable efforts to ensure proper
                  backups
                  and maintain the System with a high level of quality and performance
                  consistent with industry standards and within the limits of the
                  technology
                  embodied in the System. Provider reserves the right to conduct
                  routine
                  backup, maintenance, software updates, equipment upgrades and other
                  activities at the times during a day that it deems appropriate
                  and
                  necessary without penalty. Provider will make every effort to schedule
                  regular maintenance and updates during times other than Normal
                  Business
                  Hours. Should the Provider find it necessary to make changes during
                  Normal
                  Business Hours, Provider will inform Client contact at least thirty
                  (30)
                  minutes before any necessary period of unavailability during Normal
                  Business Hours by telephone or email. When possible, Provider will
                  provide
                  alternative access to the Applications during Normal Business Hours
                  when
                  necessary actions require temporarily terminating availability
                  to the ASP
                  Equipment. Provider is not obligated to inform Client of a necessary
                  period of unavailability during work hours other than Normal Business
                  Hours. Provider reserves the right to restrict access during periods
                  of
                  routine backup, maintenance, and other activities outside Normal
                  Business
                  Hours.
                  Except in the event that an upgrade is necessary to correct a defect
                  in
                  the Applications, Provider shall provide Client no less than 48
                  hours
                  notice prior to effecting any upgrade to the Applications. Provider
                  will
                  provide detailed information and training if necessary on any material
                  changes to the Service.

              

      

      

      
        	
                3.

              	
                Defect
                  Notification and Correction.
                  In
                  such cases as Client discovers a defect in the Applications, Client
                  will
                  notify Provider via a call to the Help Desk. During Normal Business
                  Hours,
                  Provider will acknowledge receipt of such notification within 30
                  minutes.
                  During Hours other than Normal Working Hours, Provider will acknowledge
                  receipt of such defect notification within 2 hours. Upon receiving
                  such
                  notification, Provider will undertake to correct such defect, or
                  provide a
                  mutually agreeable workaround, within the same business day. In
                  such cases
                  as it is necessary to modify the Applications to correct a defect
                  in the
                  Applications, Except in the case Client agrees to waive such notice,
                  Provider shall provide no less than 3 hours notice prior to effecting
                  any
                  such upgrade.

              

      

      

      
        	
                4.

              	
                System
                  Availability Levels.
                  Provider will make the Applications available to Client through
                  the System
                  no less than 99.5% during Normal Business Hours, and no less than
                  95%
                  during work hours that are not Normal Business Hours (the “System
                  Availability Levels”). 

              

      

      
        	 	
                a)

              	
                In
                  the event that the Applications are not available to Client through
                  the
                  System, Provider will make commercially reasonable efforts to restore
                  access within the constraints of the situation under the following
                  procedure: In the event the Applications are not available to Client
                  through the Provider’s Web Site, Client will promptly contact Provider to
                  report the event. In response to a report of a loss of availability
                  event,
                  Provider will: (1) collect information from Client in order to
                  define the
                  event and begin an investigation into the cause, (2) utilize Provider
                  and
                  other resources as appropriate to investigate the cause, (3) report
                  results of its investigation to Client, and (4) take timely action
                  to
                  facilitate the correction of the event if the cause is within Direct
                  Control of Provider, or if the cause is outside the Direct Control
                  of
                  Provider, Provider will advise Client on a course of action within
                  the
                  parameters of the event, and when appropriate and feasible, will
                  assist
                  Client in affecting a resolution.

              

      

      
        	 	
                b)

              	
                In
                  the event of a telecommunications outage affecting access to the
                  System
                  during Normal Business Hours, Provider will report the outage to
                  the
                  designated Client contact on file. Provider will contact Client
                  within
                  thirty (30) minutes of discovering the outage or the required scheduling
                  of an event that will temporarily interrupt access or processing
                  by the
                  Named Users. An estimate of the approximate length of the interruption
                  will be communicated, if it is known. Communication will be attempted
                  first by email, and second by telephone. Provider is responsible
                  only for
                  making a commercially reasonable effort to communicate with Client’s
                  designated contact. 

              

      

      

      
        
           

        

        
          -43-

          
            

          

        

        
           

        

      

      
        	
                5.

              	
                Remedies.
                  Upon
                  Client’s request, Provider will provide a credit to Client if the System
                  Availability Level falls below the percentages indicated above
                  during a
                  calendar month; provided that Client properly reports the lack
                  of
                  availability during such calendar month to Provider in accordance
                  with its
                  standard reporting procedures. In such event, Client’s account will be
                  credited for the monetary equivalent of twice the unavailable time
                  period.
                  Client will have the right to terminate this Agreement with Provider
                  upon
                  thirty (30) days prior written notice in the event that the Service
                  Availability Levels are not met by Provider for three (3) consecutive
                  weeks, or more than six (6) times in a any six (6) calendar month
                  period. THE
                  FOREGOING REPRESENTS THE SOLE AND EXCLUSIVE REMEDIES TO CLIENT
                  AND SOLE
                  LIABILITY OF PROVIDER FOR FAILURE OF PROVIDER TO MEET THE SYSTEM
                  AVAILABILITY LEVELS SET FORTH ABOVE.

              

      

      

      
        	
                6.

              	
                Disclaimers.
                  Given the nature of the System, there are many factors outside
                  the Direct
                  Control of Provider that may affect the System Availability Levels,
                  including but not limited to failures or difficulties with Third-Party
                  Components employed by Provider outside its Direct Control, and
                  other
                  equipment or software of Client. Provider cannot and will not be
                  responsible for loss of User Information associated with the failure
                  of
                  the ASP Equipment, the Application or Third-Party Components employed
                  in
                  providing the Services. FURTHERMORE, PROVIDER DOES NOT AND CANNOT
                  WARRANT
                  THAT THE SYSTEM WILL OPERATE UNINTERRUPTED NOR THAT IT WILL BE
                  FREE FROM
                  MINOR DEFECTS OR ERRORS, WHICH DO NOT MATERIALLY AFFECT ITS PERFORMANCE,
                  NOR THAT THE APPLICATIONS CONTAINED IN THE SYSTEM ARE DESIGNED
                  TO MEET ALL
                  CLIENT'S BUSINESS REQUIREMENTS. PROVIDER WILL NOT BE LIABLE FOR
                  ANY
                  AMOUNT, REGARDLESS OF THE BASIS OF THE CLAIM, EXCEEDING THE PRICE
                  ACTUALLY
                  PAID BY CLIENT ATTRIBUTABLE TO THE SERVICES AT ISSUE. IN NO EVENT
                  WILL
                  PROVIDER BE LIABLE, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE)
                  OR
                  OTHER LEGAL THEORY, FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE,
                  OR
                  CONSEQUENTIAL DAMAGES (INCLUDING LOST SAVINGS, LOST PROFIT, LOST
                  DATA OR
                  BUSINESS INTERRUPTION) EVEN IF NOTIFIED IN ADVANCE OF SUCH POSSIBILITY,
                  ARISING OUT OF OR PERTAINING TO THE SUBJECT MATTER OF THIS
                  SLA.

              

      

      

      
        
           

        

        
          -44-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}]]