Document:

exv10w2

Exhibit 10.2

EXHIBIT A

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

Original Issue Date: May 28, 2009

Original Conversion Price (subject to the provisions herein): $1.00

$                    

10% SECURED CONVERTIBLE DEBENTURE

DUE MAY 28, 2010

     THIS 10% SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly
issued 10% Secured Convertible Debentures of T3 Motion, Inc., a Delaware corporation, (the
“Company”), having its principal place of business at 2990 Airway Avenue, Costa Mesa,
California, 92626, designated as its 10% Secured Convertible Debenture due May 28, 2010 (this
debenture, the “Debenture” and, collectively with the other debentures of such series, the
“Debentures”).

     FOR VALUE RECEIVED, the Company promises to pay to                                          or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal
sum of $                     on May 28, 2010 (the “Maturity Date”) or such earlier date as this
Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the following additional
provisions:

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

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

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

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

     “Beneficial Ownership Limitation” shall have the meaning set forth in Section
4(c).

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

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

     “Change of Control Transaction” means the occurrence after the date hereof of
any of (a) an acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company, by contract
or otherwise) of in excess of 40% of the voting securities of the Company (other than by
means of conversion or exercise of the Debentures and the Securities issued together with
the Debentures), (b) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to such transaction own less
than 60% of the aggregate voting power of the Company or the successor entity of such
transaction, or (c) the Company sells or transfers all or substantially all of its assets to
another Person and the stockholders of the Company

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immediately prior to such transaction own less than 60% of the aggregate voting power
of the acquiring entity immediately after the transaction, (d) a replacement at one time or
within a three year period of more than one-half of the members of the Board of Directors
which is not approved by a majority of those individuals who are members of the Board of
Directors on the date hereof (or by those individuals who are serving as members of the
Board of Directors on any date whose nomination to the Board of Directors was approved by a
majority of the members of the Board of Directors who are members on the date hereof), or
(e) the execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth in clauses (a) through (d)
above.

     “Conversion” shall have the meaning ascribed to such term in Section 4.

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

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

     “Conversion Schedule” means the Conversion Schedule in the form of Schedule
1 attached hereto.

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

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

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

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

     “Effective Date” means the earlier of (a) the effective date of a Registration
Statement and (b) the date that all of Conversion Shares are eligible for sale under Rule
144, without (i) the requirement for the Company to be in compliance with the current public
information required under Rule 144 and (ii) volume or manner-of-sale restrictions.

     “Equity Conditions” means, during the period in question, (a) the Company shall
have duly honored all conversions and redemptions scheduled to occur or occurring by virtue
of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid
all liquidated damages and other amounts owing to the Holder in respect of this Debenture,
(c)(i) there is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock
issuable pursuant to the Transaction Documents (and the Company believes, in good faith,
that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all
of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issued
and issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144
without volume or manner-of-sale

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restrictions or current public information requirements as determined by the counsel to
the Company pursuant to a written opinion letter to such effect, addressed and acceptable to
the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and
all of the shares issuable pursuant to the Transaction Documents are listed or quoted for
trading on such Trading Market (and the Company believes, in good faith, that trading of the
Common Stock on a Trading Market will continue uninterrupted for the foreseeable future),
(e) there is a sufficient number of authorized but unissued and otherwise unreserved shares
of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (f) there is no existing Event of Default or no existing event which, with the
passage of time or the giving of notice, would constitute an Event of Default, (g) the
issuance of the shares in question to the Holder would not violate the limitations set forth
in Section 4(c) herein, (h) there has been no public announcement of a pending or proposed
Fundamental Transaction or Change of Control Transaction that has not been consummated, (i)
the Holder is not in possession of any information provided by the Company that constitutes,
or may constitute, material non-public information and (j) for each Trading Day in a period
of 10 consecutive Trading Days prior to the applicable date in question, the average daily
dollar trading volume for the Common Stock on the principal Trading Market exceeds $50,000
per Trading Day.

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

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

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

     “Mandatory Default Amount” means the sum of (a) 120% of the outstanding
principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b)
all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

     “New York Courts” shall have the meaning set forth in Section 9(d).

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

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

     “Optional Redemption Amount” means the sum of (a) 120% of the then outstanding
principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated
damages and other amounts due in respect of the Debenture.

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

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

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

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

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

     “Permitted Indebtedness” means (a) the indebtedness evidenced by the
Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on
Schedule 3.1(aa) attached to the Purchase Agreement, (c) indebtedness that is
expressly subordinate in right of payment to the indebtedness evidenced by this Debenture
pursuant to a written subordination agreement with the Holder that is acceptable to each
Holder in its sole and absolute discretion, (d) indebtedness evidenced by the Other
Debentures, (e) indebtedness secured by Permitted Liens, (f) indebtedness for trade payables
incurred in the ordinary course of business, and (g) extensions, re-financings, and renewals
of any Permitted Indebtedness so long as such extensions, re-financings and renewals are on
more favorable terms to the Company.

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

     “Purchase Agreement” means the Securities Purchase Agreement, dated as of May
28, 2009 among the Company and the original Holders, as amended, modified or supplemented
from time to time in accordance with its terms.

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

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

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

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

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

     “Trading Day” means a day on which the New York Stock Exchange is open for
business.

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

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

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

     Section 2. Interest.

     a) Payment of Interest in Cash. The Company shall pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this Debenture at the
rate of 10% per annum, payable on each Conversion Date (as to that principal amount then
being converted), on each Optional Redemption Date (as to that principal amount then being
redeemed) and on the Maturity Date (each such date, an “Interest Payment Date”) (if
any Interest Payment Date is not a Business Day, then the applicable payment shall be due on
the next succeeding Business Day), in cash.

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     b) Reserved.

     c) Interest Calculations. Interest shall be calculated on the basis of a
360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily
commencing on the Original Issue Date until payment in full of the outstanding principal,
together with all accrued and unpaid interest, liquidated damages and other amounts which
may become due hereunder, has been made.

     d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder
shall entail a late fee at an interest rate equal to the lesser of 15% per annum or the
maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily
from the date such interest is due hereunder through and including the date of actual
payment in full.

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

     Section 3. Registration of Transfers and Exchanges.

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

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

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

     Section 4. Conversion.

     a) Voluntary Conversion. At any time after the 90th calendar day
following the Original Issue Date until this Debenture is no longer outstanding, this
Debenture shall be convertible, in whole or in part, into shares of Common Stock at the
option of the Holder, at any time and from time to time (subject to the conversion
limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by
delivering to the

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Company a Notice of Conversion, the form of which is attached hereto as Annex A
(each, a “Notice of Conversion”), specifying therein the principal amount of this
Debenture to be converted and the date on which such conversion shall be effected (such
date, the “Conversion Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed
delivered hereunder. To effect conversions hereunder, the Holder shall not be required to
physically surrender this Debenture to the Company unless the entire principal amount of
this Debenture, plus all accrued and unpaid interest thereon, has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding principal amount of
this Debenture in an amount equal to the applicable conversion. The Holder and the Company
shall maintain records showing the principal amount(s) converted and the date of such
conversion(s). The Company may deliver an objection to any Notice of Conversion within 1
Business Day of delivery of such Notice of Conversion. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and determinative in the absence
of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge
and agree that, by reason of the provisions of this paragraph, following conversion of a
portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may
be less than the amount stated on the face hereof.

     b) Conversion Price. The conversion price in effect on any Conversion Date
shall be equal to $1.00, subject to adjustment herein (the “Conversion Price”).

     c) Conversion Limitations. The Company shall not effect any conversion of
this Debenture, and a Holder shall not have the right to convert any portion of this
Debenture, to the extent that after giving effect to the conversion set forth on the
applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any
other person or entity acting as a group together with the Holder or any of the Holder’s
Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as
defined below).  For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its Affiliates shall include the number of shares
of Common Stock issuable upon conversion of this Debenture with respect to which such
determination is being made, but shall exclude the number of shares of Common Stock which
are issuable upon (A) conversion of the remaining, unconverted principal amount of this
Debenture beneficially owned by the Holder or any of its Affiliates and (B) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company
subject to a limitation on conversion or exercise analogous to the limitation contained
herein (including, without limitation, any other Debentures or the Warrants) beneficially
owned by the Holder or any of its Affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. To the extent that the limitation contained in this Section 4(c) applies, the
determination of whether this Debenture is convertible (in relation to other securities
owned by the Holder together with any Affiliates) and of which principal amount of this
Debenture is convertible shall be in the reasonable discretion of the Holder, and the
submission of a Notice of Conversion shall

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be deemed to be the Holder’s determination of whether this Debenture may be converted
(in relation to other securities owned by the Holder together with any Affiliates) and which
principal amount of this Debenture is convertible, in each case subject to the Beneficial
Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed
to represent to the Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the Company
shall have no obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 4(c), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as stated in the most recent of the following: (A) the Company’s most recent
periodic or annual report, as the case may be; (B) a more recent public announcement by the
Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting
forth the number of shares of Common Stock outstanding.  Upon the written or oral request of
a Holder, the Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to the conversion
or exercise of securities of the Company, including this Debenture, by the Holder or its
Affiliates since the date as of which such number of outstanding shares of Common Stock was
reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The
Holder, upon not less than 61 days’ prior notice to the Company (unless there are less than
61 days remaining until the Maturity Date, in which case such notice period shall be one day
less than the number of days remaining until the Maturity Date), may waive the Beneficial
Ownership Limitation provisions of this Section 4(c). Any such waiver will not be effective
until the 61st day after such notice is delivered to the Company (or such shorter
period described in the previous sentence if there are less than 61 days remaining until the
Maturity Date). The Beneficial Ownership Limitation provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with the terms of
this Section 4(c) to correct this paragraph (or any portion hereof) which may be defective
or inconsistent with the intended Beneficial Ownership Limitation contained herein or to
make changes or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a successor holder of
this Debenture.

     d) Mechanics of Conversion.

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

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     ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after each Conversion Date (the “Share Delivery Date”), the
Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or
certificates representing the Conversion Shares which, on or after the earlier of
(i) the six month anniversary of the Original Issue Date or (ii) the Effective Date,
shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) representing the number of
Conversion Shares being acquired upon the conversion of this Debenture (including,
if the Company has given continuous notice pursuant to Section 2(b) for payment of
interest in shares of Common Stock at least 20 Trading Days prior to the date on
which the Notice of Conversion is delivered to the Company, shares of Common Stock
representing the payment of accrued interest otherwise determined pursuant to
Section 2(a) but assuming that the Interest Notice Period is the 20 Trading Days
period immediately prior to the date on which the Notice of Conversion is delivered
to the Company and excluding for such issuance the condition that the Company
deliver Interest Conversion Shares as to such interest payment) and (B) a bank check
in the amount of accrued and unpaid interest (if the Company has elected or is
required to pay accrued interest in cash). On or after the earlier of (i) the six
month anniversary of the Original Issue Date or (ii) the Effective Date, the Company
shall use its best efforts to deliver any certificate or certificates required to be
delivered by the Company under this Section 4(d) electronically through the
Depository Trust Company or another established clearing corporation performing
similar functions.

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

     iv. Obligation Absolute; Partial Liquidated Damages. The Company’s
obligations to issue and deliver the Conversion Shares upon conversion of this
Debenture in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any waiver
or consent with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder
or any other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of such

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Conversion Shares; provided, however, that such delivery shall
not operate as a waiver by the Company of any such action the Company may have
against the Holder. In the event the Holder of this Debenture shall elect to
convert any or all of the outstanding principal amount hereof, the Company may not
refuse conversion based on any claim that the Holder or anyone associated or
affiliated with the Holder has been engaged in any violation of law, agreement or
for any other reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this Debenture shall have
been sought and obtained, and the Company posts a surety bond for the benefit of the
Holder in the amount of 150% of the outstanding principal amount of this Debenture,
which is subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the underlying dispute and the proceeds of
which shall be payable to the Holder to the extent it obtains judgment. In the
absence of such injunction, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion. If the Company fails for any
reason to deliver to the Holder such certificate or certificates pursuant to Section
4(d)(ii) by the second Trading Day after the Share Delivery Date, the Company shall
pay to the Holder, in cash, as liquidated damages and not as a penalty, for each
$1,000 of principal amount being converted, $10 per Trading Day for each Trading Day
after such second (2nd) Trading Day after the Share Delivery Date until
such certificates are delivered. Nothing herein shall limit a Holder’s right to
pursue actual damages or declare an Event of Default pursuant to Section 8 hereof
for the Company’s failure to deliver Conversion Shares within the period specified
herein and the Holder shall have the right to pursue all remedies available to it
hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holder from seeking to enforce damages pursuant to any other Section
hereof or under applicable law.

     v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the Holder, if the
Company fails for any reason to deliver to the Holder such certificate or
certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after
such Share Delivery Date the Holder is required by its brokerage firm to purchase
(in an open market transaction or otherwise), or the Holder’s brokerage firm
otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by
the Holder of the Conversion Shares which the Holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder (in addition to any other remedies
available to or elected by the Holder) the amount by which (x) the Holder’s total
purchase price (including any brokerage commissions) for the Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of shares of Common
Stock that the Holder was entitled to receive from the conversion at issue
multiplied by (2) the actual sale price at which the sell order giving rise to such
purchase obligation was executed (including any brokerage commissions)

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and (B) at the option of the Holder, either reissue (if surrendered) this
Debenture in a principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common Stock that would
have been issued if the Company had timely complied with its delivery requirements
under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of this Debenture with respect to which the actual sale price of the
Conversion Shares (including any brokerage commissions) giving rise to such purchase
obligation was a total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of the amount of
such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing shares of Common Stock
upon conversion of this Debenture as required pursuant to the terms hereof.

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

     vii. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this Debenture. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon such
conversion, the Company shall at its election, either pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by the
Conversion Price or round up to the next whole share.

     viii. Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Debenture shall be made without charge to

12

 

the Holder hereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificates, provided that, the
Company shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of this Debenture so converted
and the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.

     Section 5. Certain Adjustments.

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

     b) Subsequent Equity Sales. If, at any time while this Debenture is
outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to
purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or
announces any sale, grant or any option to purchase or other disposition), any Common Stock
or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an
effective price per share that is lower than the then Conversion Price (such lower price,
the “Base Conversion Price” and such issuances, collectively, a “Dilutive
Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued
shall at any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to warrants, options
or rights per share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share that is lower than the
Conversion Price, such issuance shall be deemed to have occurred for less than the
Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be
reduced to equal the Base Conversion Price. Such adjustment shall be made whenever

13

 

such Common Stock or Common Stock Equivalents are issued. Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition
set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock
or Common Stock Equivalents at the lowest possible conversion price at which such securities
may be converted or exercised. The Company shall notify the Holder in writing, no later than
1 Business Day following the issuance of any Common Stock or Common Stock Equivalents
subject to this Section 5(b), indicating therein the applicable issuance price, or
applicable reset price, exchange price, conversion price and other pricing terms (such
notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the
occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of
Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive
Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in
the Notice of Conversion.

     c) Subsequent Rights Offerings. If the Company, at any time while the
Debenture is outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common
Stock at a price per share that is lower than the VWAP on the record date referenced below,
then the Conversion Price shall be multiplied by a fraction of which the denominator shall
be the number of shares of the Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of shares of the
Common Stock outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so offered
(assuming delivery to the Company in full of all consideration payable upon exercise of such
rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such rights,
options or warrants.

     d) Pro Rata Distributions. If the Company, at any time while this Debenture is
outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences
of its indebtedness or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security (other than the Common Stock, which shall be subject
to Section 5(b)), then in each such case the Conversion Price shall be adjusted by
multiplying such Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the VWAP determined as of the record date mentioned above, and of
which the numerator shall be such VWAP on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so distributed
applicable to 1 outstanding share of the Common Stock as determined by the Board of
Directors of the Company in good faith. In either case the adjustments shall be described
in a statement delivered to the Holder describing

14

 

the portion of assets or evidences of indebtedness so distributed or such subscription
rights applicable to 1 share of Common Stock. Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after the record date
mentioned above.

     e) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (i) the Company effects any merger or consolidation of the Company with or into
another Person and shareholders of the Company hold less than 60% of voting equity
securities of the Person, (ii) the Company effects any sale of all or substantially all of
its assets in one transaction or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (iv) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then, upon any subsequent conversion of this Debenture,
the Holder shall have the right to receive, for each Conversion Share that would have been
issuable upon such conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock
(the “Alternate Consideration”). For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion
the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any successor
to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder
a new debenture consistent with the foregoing provisions and evidencing the Holder’s right
to convert such debenture into Alternate Consideration. The terms of any agreement pursuant
to which a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 5(e) and
insuring that this Debenture (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.

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

15

 

     g) Notice to the Holder.

     i. Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 5, the Company shall promptly
deliver to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

     ii. Notice to Allow Conversion by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the Common Stock,
(B) the Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall authorize the granting to all
holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the assets
of the Company, of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property or (E) the Company shall authorize
the voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company, then, in each case, the Company shall cause to be filed at each
office or agency maintained for the purpose of conversion of this Debenture, and
shall cause to be delivered to the Holder at its last address as it shall appear
upon the Debenture Register, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record shall be entitled to exchange
their shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share exchange,
provided that the failure to deliver such notice or any defect therein or in the
delivery thereof shall not affect the validity of the corporate action required to
be specified in such notice. In the event that the proposed action set forth in
this Section 5(g)(ii) is material and if the proposed action has not yet been
publicly disclosed by the Company, the Holder hereby agrees to maintain the
confidentiality of such disclosure and the Company shall use best efforts to
publicly disclose all such material information as soon as possible. The Holder is
entitled to convert this Debenture during the 20-day period commencing on the date
of such notice through the effective date of the event triggering such notice.

16

 

     Section 6. Redemption.

     a) Optional Redemption at Election of Company. Subject to the provisions of
this Section 6(a), at any time after 6-month anniversary of the Original Issue Date, the
Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the
date such notice is deemed delivered hereunder, the “Optional Redemption Notice
Date”) of its irrevocable election to redeem some or all of the then outstanding
principal amount of this Debenture for cash in an amount equal to the Optional Redemption
Amount on the 20th Trading Day following the Optional Redemption Notice Date
(such date, the “Optional Redemption Date”, such 20 Trading Day period, the
“Optional Redemption Period” and such redemption, the “Optional
Redemption”). The Optional Redemption Amount is payable in full on the Optional
Redemption Date. The Company covenants and agrees that it will honor all Notices of
Conversion tendered from the time of delivery of the Optional Redemption Notice through the
date all amounts owing thereon are due and paid in full. The Company’s determination to pay
an Optional Redemption in cash shall be applied ratably to all of the holders of the then
outstanding Debentures based on their (or their predecessor’s) initial purchases of
Debentures pursuant to the Purchase Agreement.

     b) Redemption Procedure. The payment of cash pursuant to an Optional
Redemption shall be payable on the Optional Redemption Date. If any portion of the payment
pursuant to an Optional Redemption shall not be paid by the Company by the applicable due
date, interest shall accrue thereon at an interest rate equal to the lesser of 15% per annum
or the maximum rate permitted by applicable law until such amount is paid in full.
Notwithstanding anything herein contained to the contrary, if any portion of the Optional
Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to
the Company given at any time thereafter, to invalidate such Optional Redemption
initio, and, with respect to the Company’s failure to honor the Optional Redemption,
the Company shall have no further right to exercise such Optional Redemption.
Notwithstanding anything to the contrary in this Section 6, the Company’s determination to
redeem in cash under Section 6(a) shall be applied ratably among the Holders of Debentures.
The Holder may elect to convert the outstanding principal amount of the Debenture pursuant
to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the
delivery of a Notice of Conversion to the Company.

     Section 7. Negative Covenants. As long as any portion of this Debenture
remains outstanding, unless the holders of at least 51% in principal amount of the then outstanding
Debentures shall have otherwise given prior written consent, the Company shall not, and shall not
permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to,
directly or indirectly:

     a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind, including,

17

 

but not limited to, a guarantee, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits therefrom;

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

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

     d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Common Stock or Common Stock Equivalents
other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under
the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents
of departing officers and directors of the Company, provided that such repurchases shall not
exceed an aggregate of $100,000 for all officers and directors during the term of this
Debenture;

     e) repay, repurchase or offer to repay, repurchase or otherwise acquire any
Indebtedness, other than the Debentures if on a pro-rata basis;

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

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

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

     Section 8. Events of Default.

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

     i. any default in the payment of (A) the principal amount of any Debenture or
(B) interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or

18

 

otherwise) which default, solely in the case of an interest payment or other
default under clause (B) above, is not cured within 5 Trading Days;

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

     iii. a default or event of default (subject to any grace or cure period
provided in the applicable agreement, document or instrument of no less than 5
Trading Days) shall occur under (A) any of the Transaction Documents or (B) any
other material agreement, lease, document or instrument to which the Company or any
Subsidiary is obligated (and not covered by clause (vi) below) and to which the
amount in controversy exceeds $350,000;

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

     v. the Company or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

     vi. the Company or any Subsidiary shall default on any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there may
be secured or evidenced, any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement that (a) involves an obligation greater
than $350,000, whether such indebtedness now exists or shall hereafter be created,
and (b) results in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable;

     vii. after the Common Stock has been initially qualified for listing on a
Trading Market, the Common Stock subsequently shall not be eligible for listing or
quotation for trading on a Trading Market and shall not be eligible to resume
listing or quotation for trading thereon within five Trading Days;

19

 

     viii. the Company shall be a party to any Change of Control Transaction or
Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33%
of its assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);

     ix. the Company does not meet the current public information requirements under
Rule 144 in respect of the Underlying Shares;

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

     xi. the Company shall breach any agreement delivered to the initial Holders
pursuant to Section 2.2 of the Purchase Agreement;

     xii. the Company shall fail to initiate a public market for the Common Stock on
a Trading Market before by September 15, 2009; and

     xiii. any monetary judgment, writ or similar final process shall be entered or
filed against the Company, any subsidiary or any of their respective property or
other assets for more than $100,000, and such judgment, writ or similar final
process shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.

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

20

 

     Section 9. Miscellaneous.

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

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

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

     d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without regard to

21

 

the principles of conflict of laws thereof. Each party agrees that all legal
proceedings concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a party hereto or
its respective Affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to
the exclusive jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction Documents), and
hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such New York Courts, or such
New York Courts are improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address in effect for
notices to it under this Debenture and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any other manner permitted by applicable
law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Debenture, then the
prevailing party in such action or proceeding shall be reimbursed by the other party for its
attorneys fees and other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.

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

     f) Severability. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all
other Persons and circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates the applicable law governing usury, the applicable
rate of interest due hereunder shall automatically be lowered to equal the maximum rate of
interest permitted under applicable law. The Company covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever enacted,

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now or at any time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not,
by resort to any such law, hinder, delay or impede the execution of any power herein granted
to the Holder, but will suffer and permit the execution of every such as though no such law
has been enacted.

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

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

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

     j) Secured Obligation. The obligations of the Company under this Debenture are
secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement,
dated as of May 28, 2009 between the Company, the Subsidiaries of the Company and the
Secured Parties (as defined therein).

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

(Signature Pages Follow)

23

 

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

	 	 	 	 	 
	 	 	T3 MOTION, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:

	 	 	 	 	 
	 

	 	      Facsimile No. for delivery of Notices:	 	 
	 

	 	 	 	 

24

 

ANNEX A

NOTICE OF CONVERSION

     The undersigned hereby elects to convert principal under the 10% Secured Convertible Debenture
due May 28, 2010 of T3 Motion, Inc., a Delaware corporation (the “Company”), into shares of
common stock (the “Common Stock”), of the Company according to the conditions hereof, as of
the date written below. If shares of Common Stock are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and
is delivering herewith such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any conversion, except for such
transfer taxes, if any.

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

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

Conversion calculations:

	 	 	 
	 

	 	Date to Effect Conversion:
	 
	 	 
	 

	 	Principal Amount of Debenture to be converted:
	 
	 	 
	 

	 	Payment of Interest in Common Stock
___ yes ___ no

(as determined by the Company)
	 
	 	 
	 

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

	 	Number of shares of Common Stock to be issued:
	 
	 	 
	 

	 	Signature:
	 
	 	 
	 

	 	Name:
	 
	 	 
	 

	 	Address for Delivery of Common Stock Certificates:
	 
	 	 
	 

	 	Or
	 
	 	 
	 

	 	DWAC Instructions:
	 
	 	 
	 

	 	Broker No:                    
	 

	 	Account No:                    

25

 

Schedule 1

CONVERSION SCHEDULE

The 10% Secured Convertible Debenture due on May 28, 2010 in the original principal amount of
$                     is issued by T3 Motion, Inc., a Delaware corporation. This Conversion Schedule reflects
conversions made under Section 4 of the above referenced Debenture.

Dated:

	 	 	 	 	 	 	 
	 	 	 	 	Aggregate	 	 
	 	 	 	 	Principal	 	 
	 	 	 	 	Amount	 	 
	 	 	 	 	Remaining	 	 
	 	 	 	 	Subsequent to	 	 
	 	 	 	 	Conversion	 	 
	Date of Conversion	 	 	 	(or original	 	 
	(or for first entry,	 	Amount of	 	Principal	 	 
	Original Issue Date)	 	Conversion	 	Amount)	 	Company Attest
	 	 	 	 	 	 	 

26exv10w3

Exhibit 10.3

EXHIBIT C

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

SERIES E COMMON STOCK PURCHASE WARRANT

T3 MOTION, INC.

	 	 	 
	Warrant Shares: 300,000

	 	Initial Exercise Date: May 28, 2009

          THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
                     (the “Holder”) is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the
“Initial Exercise Date”) and on or prior to the close of business on the five year
anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to
subscribe for and purchase from T3 Motion, Inc., a Delaware corporation (the “Company”), up
to
                     shares (the “Warrant Shares”) of Common Stock. The purchase price of one share
of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section
2(b).

     Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase Agreement (the
“Purchase Agreement”), dated May 28, 2009, among the Company and the purchasers signatory
thereto.

     Section 2. Exercise.

     a) Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company (or such
other office or agency of the Company as it may designate by notice in writing to the
registered Holder at the address of the Holder appearing on the books of the

1

 

Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed
hereto; and, within 3 Business Days of the date said Notice of Exercise is delivered to the
Company, the Company shall have received payment of the aggregate Exercise Price of the
shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank.
Notwithstanding anything herein to the contrary, the Holder shall not be required to
physically surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full, in which
case, the Holder shall surrender this Warrant to the Company for cancellation within 3
Business Days of the date the final Notice of Exercise is delivered to the Company. Partial
exercises of this Warrant resulting in purchases of a portion of the total number of Warrant
Shares available hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant
Shares purchased. The Holder and the Company shall maintain records showing the number of
Warrant Shares purchased and the date of such purchases. The Company shall deliver any
objection to any Notice of Exercise Form within 1 Business Day of receipt of such notice.
In the event of any dispute or discrepancy, the records of the Holder shall be controlling
and determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this
paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number
of Warrant Shares available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.

               b) Exercise Price. The exercise price per share of the Common Stock under this
Warrant shall be $1.20, subject to adjustment hereunder (the “Exercise Price”).

               c) Cashless Exercise. If at any time after the 18-month anniversary of the
date of the Purchase Agreement, there is no effective Registration Statement registering, or
no current prospectus available for, the resale of the Warrant Shares by the Holder, then
this Warrant may also be exercised at such time by means of a “cashless exercise” in which
the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal
to the quotient obtained by dividing [(A-B) (X)] by (A), where:

	 	(A)	 	= the VWAP on the Business Day immediately preceding the date
of the delivery of the Notice of Exercise;
	 
	 	(B)	 	= the Exercise Price of this Warrant, as adjusted; and
	 
	 	(X)	 	= the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of a cash
exercise rather than a cashless exercise.

               d) Exercise Limitations. The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance
after exercise as set forth on the applicable Notice of Exercise, the Holder (together with

2

 

the Holder’s Affiliates, and any other person or entity acting as a group together with
the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its Affiliates
shall include the number of shares of Common Stock issuable upon exercise of this Warrant
with respect to which such determination is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any of its
Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other Common Stock
Equivalents) subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder, it being acknowledged by the Holder that the Company is
not representing to the Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and the Holder is solely responsible for any schedules required to be filed
in accordance therewith. To the extent that the limitation contained in this Section 2(d)
applies, the determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder together with any Affiliates) and of which portion of this
Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of
a Notice of Exercise shall be deemed to be the Holder’s determination of whether this
Warrant is exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to
the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes of this
Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may
rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s
most recent periodic or annual report, as the case may be, (B) a more recent public
announcement by the Company or (C) any other notice by the Company or the Transfer Agent
setting forth the number of shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within two Business Days confirm orally and in
writing to the Holder the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant, by the
Holder or its Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of
the number of shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon
not less than 61 days’ prior notice to the Company (unless there are less than 61 days
remaining until the Termination Date, in which case such notice period shall be one day less
than the number of days remaining until the Termination Date), may waive the Beneficial

3

 

Ownership Limitation
provisions of this Section 2(d). Any such waiver will not be effective until the 61st
day after such notice is delivered to the Company (or such shorter period described in the
previous sentence if there are less than 61 days remaining until the Termination Date). The
provisions of this paragraph shall be construed and implemented in a manner otherwise than
in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended Beneficial
Ownership Limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Warrant.

     e) Mechanics of Exercise.

     i. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the Transfer Agent to the
Holder by crediting the account of the Holder’s prime broker with the
Depository Trust Company through its Deposit Withdrawal Agent Commission
(“DWAC”) system if the Company is then a participant in such system
and either (A) there is an effective Registration Statement permitting the
resale of the Warrant Shares by the Holder or (B) the shares are eligible
for resale without volume or manner-of-sale limitations pursuant to Rule
144, and otherwise by physical delivery to the address specified by the
Holder in the Notice of Exercise within 7 Business Days from the delivery to
the Company of the Notice of Exercise Form, surrender of this Warrant (if
required) and payment of the aggregate Exercise Price as set forth above
(the “Warrant Share Delivery Date”). This Warrant shall be deemed
to have been exercised on the date the Exercise Price is received by the
Company. The Warrant Shares shall be deemed to have been issued, and Holder
or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the
Exercise Price (or by cashless exercise, if permitted) and all taxes
required to be paid by the Holder, if any, pursuant to Section 2(e)(vi)
prior to the issuance of such shares, have been paid.

     ii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the request of a
Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase
the unpurchased Warrant Shares called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant.

     iii. Rescission Rights. If the Company fails to cause the
Transfer Agent to transmit to the Holder a certificate or the certificates
representing

4

 

the Warrant Shares pursuant to Section 2(e)(i) by the Warrant
Share Delivery Date, then, the Holder will have the right to rescind such
exercise.

     iv. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause the Transfer Agent to transmit
to the Holder a certificate or the certificates representing the Warrant
Shares pursuant to an exercise on or before the Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to purchase (in
an open market transaction or otherwise) or the Holder’s brokerage firm
otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “Buy-In”), then the Company shall
(A) pay in cash to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (1)
the number of Warrant Shares that the Company was required to deliver to the
Holder in connection with the exercise at issue times (2) the price at which
the sell order giving rise to such purchase obligation was executed, and (B)
at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored
or deliver to the Holder the number of shares of Common Stock that would
have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted exercise of shares of Common Stock with an aggregate
sale price giving rise to such purchase obligation of $10,000, under clause
(A) of the immediately preceding sentence the Company shall be required to
pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and,
upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder’s right to pursue any other remedies available
to it hereunder, at law or in equity including, without limitation, a decree
of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing shares of
Common Stock upon exercise of the Warrant as required pursuant to the terms
hereof.

     v. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall, at its election,
either pay a cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Exercise Price or round up to the
next whole share.

5

 

     vi. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or in such
name or names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant Shares are to be
issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder and the Company may require, as
a condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.

     vii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

     Section 3. Certain Adjustments.

     a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any shares of
Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of
shares or (iv) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding immediately after such
event and the number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain
unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective
immediately after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.

     b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as
applicable, at any time while this Warrant is outstanding, shall sell or grant any option to
purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or
announce any offer, sale, grant or any option to purchase or other disposition) any Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at
an effective price per share less than the then Exercise Price (such lower price, the
“Base Share Price” and such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued

6

 

shall at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such issuance, be
entitled to receive shares of Common Stock at an effective price per share which is less
than the Exercise Price, such issuance shall be deemed to have occurred for less than the
Exercise Price on such date of the Dilutive Issuance), then, the Exercise Price shall be
reduced and only reduced to equal the Base Share Price. Additionally, in connection with any
such adjustment to the Exercise Price described in the preceding sentence, the number of
Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price
payable hereunder, after taking into account the decrease in the Exercise Price, shall be
equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be
made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the
foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect
of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the
Business Day following the issuance of any Common Stock or Common Stock Equivalents subject
to this Section 3(b), indicating therein the applicable issuance price, or applicable reset
price, exchange price, conversion price and other pricing terms (such notice, the
“Dilutive Issuance Notice”). For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the
occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of
whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

     c) Subsequent Rights Offerings. If the Company, at any time while the Warrant
is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and
not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the VWAP at the record date mentioned below, then, the Exercise
Price shall be multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock outstanding on
the date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming receipt by the
Company in full of all consideration payable upon exercise of such rights, options or
warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights
or warrants are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or warrants.

     d) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to Holders of the
Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or
rights or warrants to subscribe for or purchase any security other than the Common Stock
(which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by a fraction

7

 

of which the denominator shall be the VWAP determined as of the record date mentioned
above, and of which the numerator shall be such VWAP on such record date less the then per
share fair market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.

     e) Fundamental Transaction. If, at any time while this Warrant is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of its assets in one
or a series of related transactions, (iii) any tender offer or exchange offer (whether by
the Company or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or property or (iv)
the Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or exchanged for
other securities, cash or property (each “Fundamental Transaction”), then, upon any
subsequent exercise of this Warrant, the Holder shall have the right to receive, for each
Warrant Share that would have been issuable upon such exercise immediately prior to the
occurrence of such Fundamental Transaction, the number of shares of Common Stock of the
successor or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate Consideration”) receivable as a
result of such merger, consolidation or disposition of assets by a holder of the number of
shares of Common Stock for which this Warrant is exercisable immediately prior to such
event. For purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any different
components of the Alternate Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a Fundamental Transaction, then the
Holder shall be given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction.

     f) Calculations. All calculations under this Section 3 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding treasury
shares, if any) issued and outstanding.

     g) Notice to Holder.

     i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company shall

8

 

promptly mail to the Holder a notice setting forth the Exercise Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company enters into a Variable Rate
Transaction, despite the prohibition thereon in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or Common Stock
Equivalents at the lowest possible conversion or exercise price at which
such securities may be converted or exercised.

     ii. Notice to Allow Exercise by Holder. If (A) the Company
shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of
any rights, (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company, then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided that the failure to mail such notice or
any defect therein or in the mailing thereof shall not affect the validity
of the corporate action required to be specified in such notice. The Holder
is entitled to exercise this Warrant during the period commencing on the
date of such notice to the effective date of the event triggering such
notice.

     Section 4. Transfer of Warrant.

9

 

     a) Transferability. Subject to compliance with any applicable securities laws
and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of
the Purchase Agreement, this Warrant and all rights hereunder (including, without
limitation, any registration rights unless inclusion of such transferee would require filing
a post-effective amendment) are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent, together with a
written assignment of this Warrant substantially in the form attached hereto duly executed
by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. The assignee shall also agree to all terms of the
Transaction Documents as applicable. Upon such surrender and, if required, such payment,
the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees, as applicable, and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The
Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.

     b) New Warrants. This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any
transfer which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice. All Warrants issued on transfers or exchanges
shall be dated the original Issue Date and shall be identical with this Warrant except as to
the number of Warrant Shares issuable pursuant thereto.

     c) Warrant Register. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name
of the record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.

     d) Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall not be
either (i) registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws or (ii) eligible for resale
without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require,
as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as
the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

     Section 5. Miscellaneous.

10

 

     a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a stockholder of the Company prior to the
exercise hereof as set forth in Section 2(e)(i).

     b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant or any stock certificate relating to the
Warrant Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.

     c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein shall not be
a Business Day, then, such action may be taken or such right may be exercised on the next
succeeding Business Day.

     d) Authorized Shares.

          The Company covenants that, during the period the Warrant is outstanding, it
will reserve from its authorized and unissued Common Stock the greater of the
Required Minimum and a sufficient number of shares to provide for the issuance of
the Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant Shares
upon the exercise of the purchase rights under this Warrant. The Company will take
all such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Trading Market upon which the Common Stock
may be listed. The Company covenants that all Warrant Shares which may be issued
upon the exercise of the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges created by the Company in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).

          Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or

11

 

appropriate to protect the rights of Holder as set forth in this Warrant
against impairment. Without limiting the generality of the foregoing, the Company
will (i) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (ii)
take all such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof, as may be, necessary to enable the Company to perform its
obligations under this Warrant.

          Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

     e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

     f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, will have restrictions upon resale imposed
by state and federal securities laws.

     g) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of such right
or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that
all rights hereunder terminate on the Termination Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

     h) Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance with the
notice provisions of the Purchase Agreement to the addresses of the Company and Holder set
forth in the Purchase Agreement, respectively.

     i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the Company.

12

 

     j) Remedies. The Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific performance of
its rights under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the provisions of
this Warrant and hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.

     k) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders from time to
time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

     l) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and Holders holding Warrants at least equal
to 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

     m) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of this Warrant.

     n) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

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

(Signature Pages Follow)

13

 

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

	 	 	 	 	 
	 	T3 MOTION, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

14

 

NOTICE OF EXERCISE

TO: T3 MOTION, INC.

          (1) The undersigned hereby elects to purchase                      Warrant Shares of the Company pursuant
to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.

          (2) Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o [if permitted] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection 2(c), to
exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in subsection
2(c).

          (3) Please issue a certificate or certificates representing said Warrant Shares in the name of
the undersigned or in such other name as is specified below:

                                                            

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery
of a certificate to:

                                                            

                                                            

                                                            

          (4) Accredited Investor. The undersigned is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

			
	Name of Investing Entity:	 	 

			
	Signature of Authorized Signatory of Investing Entity:	 	 

			
	Name of Authorized Signatory:	 	 

			
	Title of Authorized Signatory:	 	 

			
	Date:	 	 

 

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

          FOR VALUE RECEIVED, [                    ] all of or [                    ] shares of the foregoing Warrant and all rights
evidenced thereby are hereby assigned to

	 	 	 	 
	 
	 	whose address is	 
	 	 
	 	 
	 
	 	 	 
	 
	 	 	.
	 	 
	 
	 	 	 
	 
	 	 	 
	 	 
	 
	 	 	 
	 
	 	Dated:                     , 	          

	 	 	 
	Holder’s Signature:
	 	 
	 

	 	 
	 
	 	 
	Holder’s Address:
	 	 
	 

	 	 
	 
	 	 
	 

	 	 

	 	 	 
	Signature Guaranteed:

	 	 
	 

	 	 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the
face of the Warrant, without alteration or enlargement or any change whatsoever, and must be
guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign the foregoing
Warrant.

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