Document:

Exhibit 10.1

                                                           *** CONFIDENTIAL ***
Accelr8
   Technology
Corporation

**** Information redacted pursuant to a confidential treatment request. An
unredacted version of this exhibit has been filed separately with the
Commission.

                          FEASIBILITY TESTING AGREEMENT

                                 October 5, 2005

This Feasibility Testing Agreement ("Agreement") effective as of the date first
set forth above ("Effective Date") is made by and between Promega, Corp., a
Wisconsin corporation with its principal place of business at 2800 Woods Hollow
Road, Madison, WI 53711 ("Promega") and Accelr8 Technology Corp., a Colorado
corporation with its principal place of business at 7000 North Broadway, Suite
3-307, Denver, CO 80221 ("Accelr8") (each, a "Party" and, collectively, the
"Parties"). Capitalized terms used in this Agreement are as defined herein.

Whereas, Promega's primary business and scientific expertise is in the
development, sales and distribution of life sciences kits and reagents;

Whereas, Accelr8's primary business is to expand the modularity and versatility
of Accelr8's OptiChem(R) surface chemistry technology to enable or improve an
industrial customer's products;

Whereas, pursuant to the Mutual Non-Disclosure Agreement executed by the Parties
as of January 30, 2003, Promega has been investigating Accelr8's OptiChem(R)
surface chemistry and application methods ("Accelr8 Technology") for use in
association with Promega's [****] technologies ("Promega Field of Use");

Whereas, the Parties contemplate the potential licensing of the Accelr8
Technology by Promega in the Promega Field of Use;

Whereas, the Parties wish to collaborate in accordance with the terms and
conditions of this Agreement;

Whereas, the Parties have agreed to a License Agreement in the forms attached as
Exhibit D and will execute the License Agreement upon successful completion of
this Feasibility Agreement,

Now Therefore, in consideration of the mutual promises contained herein and
other good and valuable consideration, receipt of which is hereby acknowledged,
the Parties hereby agree as follows:

1.    Scope of Agreement

     This Agreement will focus on the development by Accelr8 of a customized
     [****] coating ("Customized Coating") for glass slides for use by Promega
     in the Promega Field of Use and a potential subsequent short

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     term supply of such glass slides should the development phases be
     successful and should Promega choose to have Accelr8 manufacture and supply
     slides for sale to third parties. If both Phases of the Feasibility
     Agreement have been successfully completed, the materials developed meet
     Promega's product performance parameters, and Promega wishes to sell slides
     with this Customized Coating, the Parties will enter into the License
     Agreement attached hereto as Exhibit D within ten (10) business days of
     completion of Phase 2.

2.   Development Obligations and Funding.

2.1  Development Obligations. The Feasibility Project is divided into two
     Phases, described in detail in Exhibit A, which constitutes an integral
     part of this agreement. During Phase 1, Accelr8 will perform development
     iterations of prototype [****] OptiChem(R) coated glass slide products,
     will develop quality control procedures and documentation, and will deliver
     prototypes for testing at Promega. During Phase 2, Accelr8 will develop and
     deliver to Promega [****] Optichem(R) slide product performance parameters,
     production processes, and written descriptions. Phase 2 of the glass slide
     development will be completed by February 28, 2006. From the Effective Date
     through February 28, 2006 ("Slide Development Term"), Accelr8 will devote
     all reasonably necessary scientific and laboratory resources to the
     development of the [****] OptiChem(R) prototypes, procedures, and process
     descriptions according to Exhibit A.

2.2  Delivery of Phase 2 [****] Products. Accelr8 will deliver to Promega
     two iterative sets of [****] slide products. Each delivery will
     include [****] slides. The timing of these deliveries will be established
     by mutual agreement of Promega and Accelr8 at the start of the Phase 2
     project.

2.3  Payment. Within ten (10) business days of the Effective Date, Promega
     will pay Accelr8 the sum of forty-nine thousand US dollars (US$49,000)
     in return for Accelr8's performance of the obligations specified under
     Phases 1 and 2 of this Agreement. If Promega determines that Phase 1
     has not been successfully completed, Promega will notify Accelr8 in
     writing and Accelr8 will within five (5) business days return to
     Promega the sum of twenty-two thousand US dollars (US$22,000), which
     represents the amount of the payment allocable to Phase 2 of this
     Agreement. Accelr8 will then have no obligation to perform any work on
     Phase 2 and the License Agreement will not be executed. Each Party will
     provide the necessary resources reasonably required for satisfying its
     obligations under this Agreement. With the exception of the payments
     due by Promega as specified above in this Section 2.3, each Party
     agrees that it will be entirely responsible for funding its own
     activities pursuant to this Agreement, unless otherwise mutually agreed
     by the Parties in writing.

2.4  Assistance. The Parties will cooperate with each other in good faith in
     order to achieve the goals of this Agreement. The Parties will share
     all relevant experimental samples, data and research results in the
     form of oral communications, presentations, documents, emails and
     electronic data generated during the term of this Agreement through
     regular and timely verbal exchanges. Information shared in accordance
     with this section will be treated as confidential by the Party to which
     it is disclosed and, subject to the confidentiality provisions
     specified in this Agreement. In addition, Accelr8 will provide
     reasonable amounts of technical support to Promega, at no cost to

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     Promega, in respect of Promega's use and analysis of the Prototype
     Samples during the term of this Agreement; provided however, that if
     Accelr8 reasonably believes that the provision of such technical
     support becomes overly burdensome, the Parties will in good faith
     determine how to resolve such issue.

2.5  Negation of Warranty. While Accelr8 shall make every effort to deliver
     optimized Prototypes, Accelr8 does not warrant any specific results of
     the efforts performed hereunder, or the performance of the Prototype
     Samples.

3.   Ownership of Inventions.

3.1  Inventions and Patent Prosecution. For the purposes of this Agreement,
     "Invention" means without limitation, all discoveries, processes, works
     of authorship, know-how, techniques, designs, compositions, art and
     techniques (whether or not patentable or copyrightable) that are: (a)
     conceived and reduced to practice during the term of this Agreement in
     furtherance of this Agreement; or (b) in the case of
     copyright-protectable works are fixed in a tangible medium during the
     term of this Agreement in furtherance of this Agreement. Regardless of
     who is considered an inventor under United States law, any Invention
     that constitutes an improvement of Promega's Background Technology
     shall be owned by Promega ("Promega's Improvement Invention"). Any
     Invention that constitutes an improvement of Accerl8's Background
     Technology shall be owned by Accerl8 ("Accerl8's Improvement
     Invention") and shall be included within the rights granted under the
     License Agreement attached to this Agreement at no additional cost to
     Promega. Any other inventions shall be Joint Inventions owned by both
     Parties without obligation of accounting to each other. If there is a
     Joint Invention in respect of which a patent application is filed, then
     Promega and Accelr8 agree to select mutually acceptable patent counsel
     to prepare and file such patent application and the Parties agree to
     cooperate in the enforcement and defense of such patents and patent
     applications. If the Invention is an Improvement Invention owned by
     either Party in accordance with this provision, the other Party shall
     cooperate as necessary in the preparation and filing of any patents or
     patent applications for which their employees are inventors. Ownership
     of any Invention will be determined in accordance with United States
     law.

3.2  Patent Costs. Each Party will be solely responsible for all patent
     prosecution costs and expenses ("Patent Costs") related to such Party's
     Improvement Inventions. The Parties will equally share reasonable,
     actually incurred and documented Patent Costs in respect of patent
     prosecution of Joint Inventions.

3.3  Identifying Inventions. Each Party will be diligent in identifying
     Joint Inventions made pursuant to this Agreement and will notify the
     other Party in writing thereof. Promega is not obligated to disclose
     Sole Inventions made pursuant to this Agreement; Accerl8 shall promptly
     disclose its Improvement Inventions and include them in the License
     Agreement if it is executed.

4.   Access to Other Party's Background Technology.

     Except as explicitly provided in this Agreement or otherwise agreed by
     the Parties in writing during the term hereof, neither Party may use
     the other Party's Background Technology or Confidential Information for
     any purpose (including without limitation any commercial purpose) other
     than for the purposes of carrying out their obligations pursuant to

<PAGE>

     this Agreement and no implied licenses or rights under any Background
     Technology or Confidential Information are granted by either Party
     under this Agreement and no rights or title in same are transferred by
     virtue of this Agreement, unless and until Promega and Accelr8 enter
     into a License Agreement in the form attached hereto. Nothing in this
     Agreement is intended to prevent either Party from using any
     information that is placed in the public domain by the other Party,
     provided that such information: (a) is not subject to any
     confidentiality obligations between the disclosing Party and any other
     person; and (b) does not constitute the Intellectual Property of the
     disclosing Party. Accelr8 and Promega agree that they will not
     distribute to any third party any of the other Party's Background
     Technology (including without limitation any proprietary materials,
     data, information and technology containing or constituting such
     Background Technology) provided to them by the other Party under this
     Agreement. "Background Technology" for the purposes of this Agreement
     means Intellectual Property that: (i) was owned, controlled or acquired
     by or granted to such Party prior to the Effective Date; or (ii) after
     the Effective Date is created, invented, conceived or reduced to
     practice by a Party solely by employees or agents of the Party or other
     than in furtherance of this Agreement. "Intellectual Property" for the
     purposes of this Agreement means inventions, discoveries, software
     (including object code, source code and documentation), works of
     authorship, know-how and techniques, in each case whether or not
     patentable, copyrightable, protectable by trade secret or subject to
     other forms of proprietary protection. Accelr8 Background Technology
     includes, but is not limited to, those patents and patent applications
     listed in Exhibit B. Promega's Background Technology includes, but is
     not limited to, those patents and patent applications listed in Exhibit
     C.

5.   Supply of Glass Slides.
5.1  Supply and Price. Upon successful completion of the two phases of
     development set forth in Section 2 above, Promega may elect to have
     Accelr8 supply [****] Opti-Chem(R) coated glass slides developed
     by Accelr8 ("Product") for a period of time through September 30, 2006,
     up to a maximum of [****] slides. Promega may purchase the Product
     through regular purchase orders under usual and customary terms and
     delivery shall take place no later than 60 days from placement of the
     order. The price shall be [****] per slide. Should Accelr8 experience
     increases in material and/or labor costs, Accelr8 may, with thirty (30)
     days' written notice, increase the price per slide by no more than [****].

5.2  Labeling.  Promega  shall  provide  Accelr8  with labels for the  Product,
     which  Accelr8  shall affix to each  Product at no additional cost.

5.3  Delay in shipment. If at any time it reasonably appears to Accelr8 that
     it may not meet a delivery schedule, Accelr8 must promptly notify
     Promega's Purchasing Department of the reasons for delay and estimated
     duration of delay at telephone number 608-277-2654 (Todd Hayes,
     Purchasing Manager), facsimile transmission number 608-277-2601 or
     electronic mail to thayes@promega.com, or via another means as Promega
     may designate. In the event Accelr8 is unable or unwilling to deliver
     the amount of the Product ordered by Promega, Accelr8 must notify
     Promega's Purchasing Department within five (5) days of receipt of
     Promega's purchase order. If directed by Promega's Purchasing
     Department, to the extent not already provided under this Feasibility
     Agreement, Accelr8 must provide the manufacturing protocols and other

<PAGE>

     information necessary for Promega to manufacture the Product itself
     within ten (10) days of receipt of Promega's written request for the
     protocols. Accelr8 must send the manufacturing protocols and other
     information to Promega via facsimile transmission with original hard
     copies sent via express mail to the Promega employee designated by
     Promega. Accelr8 must also provide technical assistance and Promega
     must pay the fees and reimbursements as set forth in Section 6 below.

5.4  Warranty. Accelr8 hereby warrants that all Product will meet or exceed
     the specifications set forth on the Quality Control Specifications that
     will be developed and delivered as part of Phase 2 of development.
     Accelr8 shall repair or replace any Product failing to meet such
     specification. If repair or replacement is not feasible, Accelr8 will
     reimburse Promega for any payment for such Product. Accelr8 understands
     and agrees that Promega will be reselling the Product and the warranty
     provided hereunder shall not be voided due to use of the Products by
     Promega's customers; provided, however, that Promega and its customers
     use and store the Product in accordance with Accelr8's recommendation.
     Each Product shipment must include Accelr8's Certificate of Analysis
     setting forth protocols and test or other evaluation information
     warranting compliance with the Quality Control Specifications.

6.   Technology Transfer.

     In the event Promega chooses not to have Accelr8 supply glass slides, or
     Acceler8 is unable or unwilling to deliver product as set forth in Section
     5.3 above, and in no event later than April 30, 2006, Accelr8 shall provide
     to Promega or a third party designated by Promega technical assistance to
     enable complete, timely and effective transfer of all know-how associated
     with manufacture and quality control of the slides. Technology transfer
     will be considered complete when Promega has received complete
     manufacturing and QC testing procedures, Accelr8 has provided raw material
     vendors and specifications, and has identified the relevant processing
     equipment and has provided onsite technical support to begin manufacturing.
     Accerl8 also agrees to to provide a reasonable level of continued support
     in the event that problems arise during actual production. In consideration
     for this technical assistance, Promega shall pay Accelr8 a fee of [****],
     as well as reasonable travel and other out-of-pocket expenses incurred in
     providing the assistance. The fee and expense reimbursement will be paid
     within ten (10) business days after successful completion of the transfer.

7.   Confidentiality.

7.1  Confidentiality Obligation. During the term of this Agreement and for 5
     years thereafter notwithstanding the termination or expiration hereof,
     each Party will maintain in confidence all information that is
     disclosed to it by the other Party in connection with this Agreement,
     which is identified in writing or if disclosed orally or visually, is
     within thirty (30) calendar days of the date of disclosure, confirmed
     in writing as confidential by the disclosing Party, or which
     information should reasonably be considered confidential by the
     receiving Party taking into account the nature of the information and
     the circumstances of its disclosure ("Confidential Information").

<PAGE>

     Confidential Information will include without limitation, all
     information relating to both Parties' business, activities and each
     Party's Background Technology.

7.2  Exceptions. Confidential Information does not include information that:
     (i) is or later becomes available to the public through no breach of
     this Agreement or any other agreement to which the disclosing Party is
     a party; (ii) is obtained from a third party who had the legal right to
     disclose the information; (iii) as of the date of disclosure, is
     already in the possession of the Party to whom disclosure is made
     through no breach of any obligation owed by any person or entity to the
     disclosing Party; or (iv) is independently developed by the receiving
     Party without the use of the disclosing Party's Confidential
     Information, as reasonably demonstrated by the receiving Party's
     records.

7.3  Disclosures Required by Law. If the receiving Party is required by a
     valid order of a court or other governmental body or is otherwise
     required by law to disclose Confidential Information, it will give the
     disclosing Party timely written notice of such requirement before
     disclosing any such Confidential Information and will cooperate with
     the disclosing Party to seek a protective order, confidential treatment
     or other appropriate measures requiring, amongst other things, that the
     Confidential Information so disclosed be used only for the purposes for
     which the order was issued and the Confidential Information so
     disclosed be redacted to limit the extent of disclosure to the minimum
     extent required to comply with the relevant court or government body
     order.

8.   Term.

8.1  Term and Termination. This Agreement will enter into effect on the
     Effective Date and will expire on September 30, 2006, subject to
     extension by mutual agreement of the Parties in writing. A Party may
     terminate this Agreement with immediate effect upon written notice to
     the other Party, if the other Party has failed to remedy a material
     breach of this Agreement within thirty (30) calendar days of the date
     of dispatch from the non-breaching Party to the breaching Party, of
     written notification identifying such material breach and requiring the
     cessation or remedy thereof.

8.2  Effect of Termination. Upon termination of this Agreement by reason of
     Accerl8's breach, Promega Background Technology and Promega
     Confidential Information received by Accelr8 pursuant to this Agreement
     will, at Promega' option either be returned to Promega or properly
     destroyed, and Promega will be entitled to receive all work performed
     by Accerl8 on its behalf up to the date of termination. Upon
     termination of this Agreement by reason of Promega's breach, Accelr8
     Background Technology and Accelr8 Confidential Information received by
     Promega pursuant to this Agreement will, at Accelr8's option either be
     returned to Accelr8 or properly destroyed. Notwithstanding the previous
     sentence, each Party's attorneys may retain one copy of any
     Confidential Information or Background Technology received from the
     other Party pursuant to this Agreement for the sole purpose of
     determining each Party's compliance with the terms of this Agreement.
     Except as permitted by this Agreement or the attached License
     Agreement, neither Party may use the other Party's Background
     Technology or Confidential Information for any purpose whatsoever,
     after the expiration or termination of this Agreement. The terms of
     Sections 3, 4, 5.4, 6, 7, 8, 9, 10, 11and 12 will survive any
     expiration or termination of this Agreement.

<PAGE>

9.   Representations and Warranties.

9.1  Representations and Warranties. Each Party represents and warrants
     that: (a) there are no outstanding agreements, assignments or
     encumbrances in conflict with the provisions of this Agreement; (b) it
     has the requisite power and authority to enter into this Agreement and
     perform the obligations and grant the rights set forth herein; (c) it
     will comply with all applicable laws, regulations and orders of any
     governmental authority of competent jurisdiction in its performance of
     this Agreement; (d) all persons participating in this Agreement on
     behalf of such Party have effectively and validly assigned to such
     Party all right, title and interest in all Inventions such person
     creates in the course of performing this Agreement; and (e) such Party
     has not transferred any right, title or interest to any third party in
     conflict with any right, title or interest transferred or to be
     transferred herein.

9.2  Disclaimer. EXCEPT AS OTHERWISE SPECIFIED IN THIS AGREEMENT, ALL
     BACKGROUND TECHNOLOGY AND CONFIDENTIAL INFORMATION IS PROVIDED "AS-IS"
     AND THE PARTY FURNISHING BACKGROUND TECHNOLOGY AND CONFIDENTIAL
     INFORMATION HEREUNDER HEREBY DISCLAIMS ALL OTHER REPRESENTATIONS AND
     WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT
     LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
     PARTICULAR PURPOSE, ACCURACY, RESULT, EFFORT, TITLE AND
     NON-INFRINGEMENT.

10.  Indemnification.

Each Party is responsible for its own acts and omissions relating to this
Agreement and any materials provided in connection with this Agreement. Each
Party agrees to indemnify, defend and hold the other Party harmless, along with
such Party's employees, trustees, officers, agents and directors, from and
against any and all losses, claims, damages and/or liabilities (including but
not limited to reasonable and documented attorneys' fees and other related
costs) arising out of personal injury or death of such Party's employees,
trustees, officers, agents and directors, or loss of or damage to its tangible
personal property, in connection with the performance of this Agreement, except
to the extent that such injury, death, loss or damage is determined, after final
judgment from which no appeal can be taken, to have resulted from an act or
omission amounting to gross negligence or willful misconduct of the Party
seeking indemnification or an employee, trustee, officer, agent or director
thereof.

11.  Limitation of Liability.

EXCEPT FOR BREACHES OF SECTIONS 4, 5, 6, 7 AND 9 ABOVE AND TO THE EXTENT OF
EITHER PARTY'S INDEMNIFICATION OBLIGATIONS UNDER SECTION 10 ABOVE, NEITHER PARTY
WILL BE LIABLE TO THE OTHER PARTY FOR: (A) THE PROCUREMENT OF SUBSTITUTE GOODS,
TECHNOLOGY, OR SERVICES; OR (B) INDIRECT, SPECIAL, INCIDENTAL, RELIANCE OR
CONSEQUENTIAL DAMAGES OF ANY KIND, REGARDLESS OF THE FORM OF ACTION WHETHER IN
CONTRACT, TORT (INCLUDING WITHOUT LIMITATION NEGLIGENCE), STRICT LIABILITY, OR
OTHER LEGAL OR EQUITABLE THEORY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.

<PAGE>

12.  Miscellaneous.

12.1.Compliance with Law. Neither Party will use or otherwise disclose any
     Background Technology or Confidential Information provided by the other
     Party pursuant to this Agreement in contravention of any laws or
     regulations of the United States, or any other applicable jurisdiction,
     including, but not limited to, insider trading laws and export laws.

12.2 Entire Agreement. This Agreement and attachments together with the
     Mutual Non-Disclosure Agreement executed by the Parties as of May 2,
     2003, sets forth the entire agreement and understanding of the Parties
     with respect to the subject matter herein and supersedes all proposals,
     oral or written, all negotiations, conversations or discussions between
     the Parties and all past dealing or industry custom, relating to the
     subject matter of this Agreement.

12.3 Independent Parties. Each of the Parties is an independent contractor
     and may not act as or be construed as an agent, joint venturer or
     employee of the other Party. Each Party understands that it is not
     authorized to incur any expenses on behalf of the other Party.

12.4 Severability. If any term or provision of this Agreement is found by a
     court of competent jurisdiction to be invalid, illegal or otherwise
     unenforceable, the same will not affect the other terms or provisions
     hereof or the whole of this Agreement, but such term or provision will
     be deemed modified to the extent necessary in the court's opinion to
     render such term or provision enforceable, and the rights and
     obligations of the Parties will be construed and enforced accordingly,
     preserving to the fullest permissible extent the original intent and
     agreement of the Parties.

12.5 Equitable Relief. Each Party understands that any unpermitted
     disclosure or improper use of any Confidential Information or
     Background Technology provided to it or owned by the other Party will
     result in irreparable harm for which there is no adequate remedy that
     can be compensated by an award of monetary damages and the providing or
     owning Party will be entitled to temporary and permanent injunctions,
     in addition to all other available remedies.

12.6 Assignment. Neither Party may assign this Agreement without the prior
     written consent of the other Party. Any purported assignment in
     violation of this section is void and will constitute a breach of this
     Agreement. The preceding sentence notwithstanding, Promega may assign
     this Agreement in conjunction with the sale or transfer of
     substantially all of the assets associated with this Agreement or in
     the event of Promega' amalgamation or merger with a third party.
     Subject to the foregoing, this Agreement is binding upon each Party's
     successors and/or permitted assigns.

12.7 Amendment; Waivers. This Agreement may not be modified or amended
     except by the mutual written agreement of the Parties. No waiver of any
     provision of this Agreement will be effective unless it is in writing
     and signed by the Party against which it is sought to be enforced. The
     delay or failure by either Party to exercise or enforce any of its
     rights under this Agreement will not constitute or be deemed a waiver
     of that Party's right thereafter to enforce those rights, nor will any
     single or partial exercise of such right preclude any other further
     exercise thereof or the exercise of any other right.

12.8 Governing Law and Jurisdiction. This Agreement, including all matters
     of construction, validity and performance will be governed by and
     construed and enforced in accordance with the laws of the State of

<PAGE>

     Colorado, as applied to contracts made, executed and to be fully
     performed in Colorado by citizens of Colorado, without regard to its
     conflict of laws rules and notwithstanding the actual residence of the
     Parties. Notwithstanding the foregoing, the Parties may apply to any
     court of competent jurisdiction for temporary injunctive relief.

12.9 Disputes. In the event of litigation between the Parties arising from
     this Agreement, the prevailing Party will be entitled to recover court
     costs and reasonable, documented fees of attorneys and experts incurred
     by such Party in connection with the action.

12.10    Force Majeure. Neither Party will lose any rights hereunder or be
         liable to the other Party for damages or losses (except for payment
         obligations) on account of failure of performance by the defaulting
         Party if the failure is occasioned by war, strike, fire, Act of God,
         earthquake, flood, lockout, embargo, governmental acts or orders or
         restrictions, failure of suppliers, or any other reason where failure
         to perform is beyond the reasonable control and not caused by the
         negligence or intentional conduct or misconduct of the non-performing
         Party and such Party has exerted all reasonable efforts to avoid or
         remedy such force majeure; provided however, that in no event will a
         Party be required to settle any labor dispute or disturbance. If an
         event of force majeure continues in force for a period of more than
         ninety (90) calendar days, the non-affected Party may terminate this
         Agreement with immediate effect by providing written notice to the
         other Party.

12.11    Other Remedies Cumulative. Except where otherwise specified, the rights
         and remedies granted to a Party under this Agreement are cumulative and
         in addition to, and not in lieu of, any other rights or remedies that
         the Party may possess at law or in equity, including, without
         limitation, rights or remedies under applicable patent, copyright,
         trade secret or proprietary rights, laws, rules or regulations.

12.12    Notice. Any notice or other communication given pursuant to this
         Agreement will be in writing and will be effective upon its personal
         delivery to the Party for whom it is intended, or upon its delivery
         (with confirmation) by an overnight delivery service, or five (5)
         business days following its deposit into the United States mail
         (certified mail, return receipt requested), addressed to such Party at
         the address set forth below; provided however that notices may not be
         sent by email. Neither Party may send notices under this Agreement by
         electronic mail. Either Party may designate a different address by
         providing written notice to the other Party in accordance with this
         section.

12.13    Address for Notices to Promega: Promega Corporation, General Counse
         2800 Woods Hollow Road, Madison, WI 53711

12.14    Address for Notices to Accelr8:  7000 N. Broadway, Suite 3-307, Denver,
         CO 80221; Attn:  Thomas V. Geimer, Chairman and CEO.

12.15    Use of Name. Neither Party will use the name(s) of the other Party or
         any abbreviation or variant thereof, in any press release or commercial
         advertisement or similar material that is used to promote or sell
         products or services, unless such Party obtains in advance the written
         consent of the named Party to such use.

<PAGE>

12.16    Publicity. The Parties will not make any public announcement of, or
         otherwise disclose to a third party, the existence or terms and
         conditions set forth in this Agreement, except as mutually agreed in
         writing or as required by disclosure obligations arising under law
         pursuant to the confidentiality provisions of this Agreement; provided
         however, that Promega may disclose terms of this Agreement to its
         affiliates under obligations of non-disclosure.

12.17    Counterparts. This  Agreement may be executed in counterparts each of
         which will be deemed an original, but all of which together will
         constitute one and the same original.

<PAGE>

IN WITNESS WHEREOF, duly authorized officers or representatives of Promega and
Accelr8 have executed this Agreement as of the Effective Date:

Promega Corp.                                        Accelr8 Technology Corp.

/s/  William A. Linton                               /s/  Thomas V. Geimer
-----------------------                              ----------------------

William A. Linton                                    Thomas V. Geimer

Chairman and CEO                                     Chairman and CEOEXHIBIT 4.1

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: October 27, 2005
Original Conversion Price (subject to adjustment herein): $4.00

                                                                      $1,800,000

                        10% CONVERTIBLE SECURED DEBENTURE
                               DUE APRIL 27, 2007

         THIS 10% CONVERTIBLE SECURED DEBENTURE is one of a series of duly
authorized and issued 10% Convertible Secured Debentures of Velocity Asset
Management Inc., a Delaware corporation, having a principal place of business at
48 S. Franklin Turnpike, Ramsey, NJ 07446 (the "Company") and J. Holder Inc., a
New Jersey corporation, having a principal place of business at 3100 Route 138W,
Wall, New Jersey 07719 (the "JHolder", and the Company and the JHolder, each a
"Seller" and collectively the "Seller"), designated as, to each Seller, its 10%
Convertible Secured Debenture, due April 27, 2007 (this debenture, the
"Debenture" and collectively with the other such series of debentures, the
"Debentures").

         FOR VALUE RECEIVED, the Sellers, jointly and severally, promise to pay
to DKR Soundshore Oasis Holding Fund Ltd. or its registered assigns (the
"Holder"), or shall have paid pursuant to the terms hereunder, the principal sum
of $1,800,000 by April 27, 2007, or such earlier date as this Debenture is
required or permitted to be repaid as provided hereunder (the "Maturity Date"),
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 have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
<PAGE>

                  "Alternate Consideration" shall have the meaning set forth in
         Section 5(d).

                  "Asset Sale" means a sale by the Sellers of any asset or
         Collateral (as defined in the Security Agreement), either real
         property, personal property or otherwise, including, but not limited
         to, the assets listed on Schedule 2 hereto, including receipt of
         payment on any obligations owed to the Sellers on such assets (by way
         of example, if a Seller receives payment on a third party obligation,
         whether debt or otherwise owed to such Seller, such payment for
         purposes of this Debenture shall constitute an Asset Sale).

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

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

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

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

                  "Common Stock" means the common stock, par value $.001 per
         share, of the Company and stock of any other class of securities into
         which such securities may hereafter have been reclassified or changed
         into.

                                       2
<PAGE>

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

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

                  "Conversion Shares" means the shares of Common Stock issuable
         upon conversion of this Debenture or as payment of interest in
         accordance with the terms.

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

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

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

                  "Effectiveness Period" shall have the meaning given to such
         term in the Registration Rights Agreement.

                  "Equity Conditions" unless waived by a Holder as to a
         particular event (which waiver shall apply only as to such event and
         only as to such Holder) as of the date of such event, shall mean,
         during the period in question, (i) the Company shall have duly honored
         all conversions and redemptions scheduled to occur or occurring by
         virtue of one or more Notice of Conversions of the Holder, if any, (ii)
         all liquidated damages and other amounts owing to the Holder in respect
         of this Debenture shall have been paid, (iii) there is an effective
         Registration Statement pursuant to which the Holder is permitted to
         utilize the prospectus thereunder to resell all of the shares issuable
         pursuant to the Transaction Documents (and the Company believes, in
         good faith, that such effectiveness will continue uninterrupted for the
         foreseeable future), (iv) the Common Stock is trading on the Trading
         Market and all of the shares issuable pursuant to the Transaction
         Documents are listed for trading on a Trading Market (and the Company
         believes, in good faith, that trading of the Common Stock on a Trading
         Market will continue uninterrupted for the foreseeable future), (v)
         there is a sufficient number of authorized but unissued and otherwise
         unreserved shares of Common Stock for the issuance of all of the shares
         issuable pursuant to the Transaction Documents, (vi) there is then
         existing no Event of Default or event which, with the passage of time
         or the giving of notice, would constitute an Event of Default, (vii)
         the issuance of the shares in question (or, in the case of a
         redemption, the shares issuable upon conversion in full of the
         redemption amount) to the Holder would not violate the limitations set
         forth in Section 4(c) and (viii) no public announcement of a pending or
         proposed Fundamental Transaction, Change of Control Transaction or
         acquisition transaction has occurred that has not been consummated.

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

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

                  "Fundamental Transaction" shall have the meaning set forth in
         Section 5(d).

                                       3
<PAGE>

                  "Interest Conversion Rate" means the lesser of 90% of (a) the
         average of the 10 Closing Prices immediately prior to the applicable
         Interest Payment Date and (b) the average of the 10 Closing Prices
         immediately prior to the date the applicable interest payment shares
         are issued and delivered if after the Interest Payment Date.

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

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

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

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

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

                  "Mandatory Default Amount" shall equal the sum of (i) the
         greater of: (A) 130% of the principal amount of this Debenture to be
         prepaid, plus all accrued and unpaid interest thereon, or (B) the
         principal amount of this Debenture to be prepaid, plus all other
         accrued and unpaid interest hereon, divided by the Conversion Price on
         (x) the date the Mandatory Default Amount is demanded or otherwise due
         or (y) the date the Mandatory Default Amount is paid in full, whichever
         is less, multiplied by the Closing Price on (x) the date the Mandatory
         Default Amount is demanded or otherwise due or (y) the date the
         Mandatory Default Amount is paid in full, whichever is greater, and
         (ii) all other amounts, costs, expenses and liquidated damages due in
         respect of this Debenture.

                  "Monthly Conversion Period" shall have the meaning set forth
         in Section 6(b) hereof.

                  "Monthly Conversion Price" shall have the meaning set forth in
         Section 6(b) hereof.

                  "Monthly Redemption" shall mean the redemption of this
         Debenture pursuant to Section 6(b) hereof.

                  "Monthly Redemption Amount" shall mean, as to a Monthly
         Redemption, $150,000.

                  "Monthly Redemption Date" means the 1st of each month,
         commencing on April 1, 2006 and ending upon the full redemption of this
         Debenture.

                  "Monthly Redemption Notice" shall have the meaning set forth
         in Section 6(b) hereof.

                  "Monthly Redemption Period" shall have the meaning set forth
         in Section 6(b) hereof.

                                       4
<PAGE>

                  "Monthly Redemption Share Amount" shall have the meaning set
         forth in Section 6(b) hereof.

                  "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" shall mean the sum of (i) 100% of
         the principal amount of the Debenture then outstanding, (ii) accrued
         but unpaid interest and (iii) 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).

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

                  "Original Issue Date" shall mean the date of the first
         issuance of the Debentures regardless of the number of transfers of any
         Debenture and regardless of the number of instruments which may be
         issued to evidence such Debenture.

                  "Permitted Indebtedness" shall mean (a) the Indebtedness
         existing on the Original Issue Date and set forth on Schedule 3.1(gg)
         attached to the Purchase Agreement, (b) lease obligations and purchase
         money Indebtedness of up to $2,000,000, in the aggregate, incurred in
         connection with the acquisition of capital assets and lease obligations
         with respect to newly acquired or leased assets and (c) Indebtedness
         incurred after the Original Issue Date pursuant to which the holders
         thereof shall have entered into a written subordination agreement
         satisfactory to the Holder, which Indebtedness shall have a maturity
         date after the Maturity Date hereof and shall have such other terms and
         conditions as are reasonably satisfactory to the Holder.

                  "Permitted Lien" shall mean the individual and collective
         reference to the following: (a) Liens for taxes, assessments and other
         governmental charges (including, without limitation, in connection with
         workers' compensation and unemployment insurance) 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 Sellers) have been established in accordance with GAAP, (b)
         Liens imposed by law which were incurred in the ordinary course of
         business, such as carriers', warehousemen's and mechanics' Liens,
         statutory landlords' Liens, and other similar Liens arising in the
         ordinary course of business, and (x) which 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 Sellers and its consolidated Subsidiaries or (y) which

                                       5
<PAGE>

         are being contested in good faith by appropriate proceedings, which
         proceedings have the effect of preventing the forfeiture or sale of the
         property or asset subject to such Lien, (c) Liens incurred in
         connection with Permitted Indebtedness under clause (b) thereunder
         provided that such Liens are not secured by assets of the Sellers or
         its Subsidiaries other than the assets so acquired or leased and (d)
         Liens incurred in connection with Permitted Indebtedness under clause
         (a) thereunder.

                  "Person" means a corporation, an association, a partnership,
         organization, a business, an individual, a government or political
         subdivision thereof or a governmental agency.

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

                  "Purchase Agreement" means the Securities Purchase Agreement,
         dated as of October 27, 2005, to which the Sellers and the original
         Holder are parties, as amended, modified or supplemented from time to
         time in accordance with its terms.

                  "Registration Rights Agreement" means the Registration Rights
         Agreement, dated as of the date of the Purchase Agreement, to which the
         Company and the original Holder are parties, as amended, modified or
         supplemented from time to time in accordance with its terms.

                  "Registration Statement" means a registration statement
         meeting the requirements set forth in the Registration Rights
         Agreement, covering among other things the resale of the Conversion
         Shares and naming the Holder as a "selling stockholder" thereunder.

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

                  "Subsidiary" shall have the meaning given to such term in the
         Purchase Agreement.

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

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

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

         Section 2.  Interest.
         ---------   --------

                                       6
<PAGE>

         a)       Payment of Interest in Cash or Kind. The Sellers 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 monthly
on first day of each calendar month, beginning on the first such date after the
Original Issue Date, on each Monthly Redemption Date (as to that principal
amount then being redeemed), on each Conversion Date (as to that principal
amount then being converted), on each Optional Redemption Date (as to the
principal amount in full being redeemed) and on the Maturity Date (except that,
if any such date is not a Business Day, then such payment shall be due on the
next succeeding Business Day) (each such date, an "Interest Payment Date"), in
cash or shares of Common Stock at the Interest Conversion Rate, or a combination
thereof (the amount to be paid in shares, the "Interest Share Amount");
provided, however, payment in shares of Common Stock may only occur if (i)
during the 10 Trading Days immediately prior to the applicable Interest Payment
Date (the "Interest Notice Period") and through and including the date such
shares of Common Stock are issued to the Holder all of the Equity Conditions,
unless waived by the Holder in writing, have been met and the Company shall have
given the Holder notice in accordance with the notice requirements set forth
below and (ii) as to such Interest Payment Date, prior to the such Interest
Notice Period (but not more 5 Trading Days prior to the commencement of the
Interest Notice Period), the Company shall have delivered to the Holder's
account with The Depository Trust Company a number of shares of Common Stock to
be applied against such Interest Share Amount equal to the quotient of (x) the
applicable Interest Share Amount divided by (y) the then Conversion Price (the
"Interest Conversion Shares").

         b)       Company's Election to Pay Interest in Kind. Subject to the
terms and conditions herein, the decision whether to pay interest hereunder in
shares of Common Stock or cash shall be at the discretion of the Company. Prior
to the commencement of an Interest Notice Period, the Company shall provide the
Holder with written notice of its election to pay interest hereunder on the
applicable Interest Payment Date either in cash, shares of Common Stock or a
combination thereof (the Company may indicate in such notice that the election
contained in such notice shall continue for later periods until revised) and the
Interest Share Amount as to the applicable Interest Payment Date. During any
Interest Notice Period, the Company's election (whether specific to an Interest
Payment Date or continuous) shall be irrevocable as to such Interest Payment
Date. Subject to the aforementioned conditions, failure to timely provide such
written notice shall be deemed an election by the Company to pay the interest on
such Interest Payment Date in cash. At any time the Company delivers a notice to
the Holder of its election to pay the interest in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 or shall file a
Current Report on Form 8-K disclosing such election. The aggregate number of
shares of Common Stock otherwise issuable to the Holder on an Interest Payment
Date shall be reduced by the number of Interest Conversion Shares previously
issued to the Holder in connection with such Interest Payment Date.

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

                                       7
<PAGE>

Payment of interest in shares of Common Stock (other than the Interest
Conversion Shares issued prior to an Interest Notice Period) shall otherwise
occur pursuant to Section 4(d)(ii) and only for purposes of the payment of
interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company in fact delivers the Conversion Shares
within the time period required by Section 4(d)(ii). Interest hereunder will be
paid to the Person in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of this Debenture (the
"Debenture Register"). Except as otherwise provided herein, if at any time the
Company pays interest partially in cash and partially in shares of Common Stock
to the holders of the Debentures, then such payment shall be distributed ratably
among the holders of the Debentures based on their (or their predecessor's) then
principal amount of Debentures pursuant to the Purchase Agreement.

         d)       Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or such lower
maximum amount of interest permitted to be charged under applicable law) ("Late
Fees") which will accrue daily, from the date such interest is due hereunder
through and including the date of payment. Notwithstanding anything to the
contrary contained herein, if on any Interest Payment Date the Company has
elected to pay interest in Common Stock and is not able to pay accrued interest
in the form of Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then the Sellers, in lieu
of delivering either shares of Common Stock pursuant to this Section 2 or paying
the regularly scheduled cash interest payment, shall deliver, within three
Trading Days of each applicable Interest Payment Date, an amount in cash equal
to the product of the number of shares of Common Stock otherwise deliverable to
the Holder in connection with the payment of interest due on such Interest
Payment Date and the highest VWAP during the period commencing on the Interest
Payment Date and ending on the Trading Day prior to the date such payment is
made. If any Interest Conversion Shares are issued to the Holder in connection
with an Interest Payment Date and are not applied against an Interest Share
Amount, then the Holder shall promptly return such excess shares to the Company.

         e)       Prepayment. Except as otherwise set forth in this Debenture
including, but not limited to, Section 6(a), the Sellers may not prepay any
portion of the principal amount of this Debenture without the prior written
consent of the Holder.

Section 3.   Registration of Transfers and Exchanges.
----------   ---------------------------------------

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

                                       8
<PAGE>

with the Purchase Agreement and applicable federal and state securities laws and
regulations.

         c)       Reliance on Debenture Register. Prior to due presentment to
the Sellers for transfer of this Debenture, the Sellers and any agent of the
Sellers 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 Sellers nor any such agent shall be affected by notice
to the contrary.

Section 4.    Conversion.
----------    ----------

         a)       Voluntary Conversion. At any time after the Original Issue
Date until this Debenture is no longer outstanding, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time (subject to the limitations on
conversion set forth in Section 4(d) hereof). The Holder shall effect
conversions by delivering to the Company the form of Notice of Conversion
attached hereto as Annex A (a "Notice of Conversion"), specifying therein the
principal amount of this Debenture to be converted and the date on which such
conversion is to be effected (a "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 received 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 converted and
the date of such conversions. The Company shall deliver any objection to any
Notice of Conversion promptly, but in no event later than 2 Business Days after
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 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.
Subject to the Holder's right to rescind pursuant to Section 4(d)(iii), Notices
of Conversion shall be irrevocable.

         b)       Conversion Price. The conversion price in effect on any
Conversion Date shall be equal to (i) $4.00 from October 27, 2005 until March
31, 2006 and (ii) on and after April 1, 2006, $2.525 (subject to adjustment
herein)(the "Conversion Price").

         c)       Holder's Restriction on Conversion. The Company shall not
effect any conversion of this Debenture, and the Holder shall not have the right
to convert any portion of this Debenture, pursuant to Section 4(a) or otherwise,
to the extent that after giving effect to such conversion, the Holder (together
with the Holder's Affiliates), as set forth on the applicable Notice of
Conversion, would beneficially own in excess of 4.99% of the number of shares of

                                        9
<PAGE>

the Common Stock outstanding immediately after giving effect to such conversion.
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 the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A) conversion of
the remaining, nonconverted portion of this Debenture 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 Debentures or the Warrants) 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 4(c)(ii),
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 applies, the determination of
whether this Debenture is convertible (in relation to other securities owned by
the Holder) and of which a portion of this Debenture is convertible shall be in
the sole discretion of such Holder. 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)(ii), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a more
recent public announcement by the Company or (z) any other 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 the 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 provisions of
this Section 4(c) may be waived by the Holder, at the election of the Holder,
upon not less than 61 days' prior notice to the Company, and the provisions of
this Section 4(c) shall continue to apply until such 61st day (or such later
date, as determined by the Holder, as may be specified in such notice of
waiver). The provisions of this paragraph shall be 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 4.99% beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such 4.99% limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Debenture. The holders of
Common Stock of the Company shall be third party beneficiaries of this Section
4(c) and the Company may not waive this Section 4(c) without the consent of
holders of a majority of its Common Stock.

                                       10
<PAGE>

         d)       Mechanics of Conversion
                  -----------------------

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

                  ii.      Delivery of Certificate Upon Conversion. Not later
         than five Trading Days after any Conversion Date, the Company will
         deliver or cause to be delivered to the Holder (A) a certificate or
         certificates representing the Conversion Shares which shall be free of
         restrictive legends and trading restrictions (other than those required
         by the Purchase Agreement) representing the number of shares of Common
         Stock being acquired upon the conversion of this Debenture (including,
         if the Company has given continuous notice pursuant to Section 2(b) for
         payment of interest in shares of Common Stock at least 20 Trading Days
         prior to the date on which the Conversion Notice is delivered to the
         Company, shares of Common Stock representing the payment of accrued
         interest otherwise determined pursuant to Section 2(a) but assuming
         that the Interest Payment Period is the 10 Trading Days period
         immediately prior to the date on which the Conversion Notice is
         delivered to the Company and excluding for such issuance the condition
         that the Company deliver Interest Conversion Shares as to such interest
         payment) and (B) a bank check in the amount of accrued and unpaid
         interest (if the Company is required to pay accrued interest in cash).
         The Company shall, if available and if allowed under applicable
         securities laws, use its best efforts to deliver any certificate or
         certificates required to be delivered by the Company under this Section
         electronically through the Depository Trust Corporation 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 fifth
         Trading Day after a Conversion Date, the Holder shall be entitled by
         written notice to the Company at any time on or before its receipt of
         such certificate or certificates thereafter, to rescind such
         conversion, in which event the Company shall immediately return the
         certificates representing the principal amount of this Debenture
         tendered for conversion.

                  iv.      Obligation Absolute; Partial Liquidated Damages. If
         the Company fails for any reason to deliver to the Holder such
         certificate or certificates pursuant to Section 4(d)(ii) by the fifth
         Trading Day after the Conversion Date, the Sellers, jointly and
         severally, shall pay to such Holder, in cash, as liquidated damages and
         not as a penalty, for each $1000 of principal amount being converted,

                                       11
<PAGE>

         $10 per Trading Day (increasing to $20 per Trading Day after 5 Trading
         Days after such damages begin to accrue) for each Trading Day after
         such fifth Trading Day until such certificates are delivered. The
         Company's obligations to issue and deliver the Conversion Shares upon
         conversion of this Debenture in accordance with the terms hereof are
         absolute and unconditional, irrespective of any action or inaction by
         the Holder to enforce the same, any waiver or consent with respect to
         any provision hereof, the recovery of any judgment against any Person
         or any action to enforce the same, or any setoff, counterclaim,
         recoupment, limitation or termination, or any breach or alleged breach
         by the Holder or any other Person of any obligation to the Company or
         any violation or alleged violation of law by the Holder or any other
         person, and irrespective of any other circumstance which might
         otherwise limit such obligation of the Company to the Holder in
         connection with the issuance of such Conversion Shares; provided,
         however, 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 any one 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, 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 principal amount of this Debenture outstanding, which is subject
         to the injunction, which bond shall remain in effect until the
         completion of arbitration/litigation of the dispute and the proceeds of
         which shall be payable to such Holder to the extent it obtains
         judgment. In the absence of an injunction precluding the same, the
         Company shall issue Conversion Shares or, if applicable, cash, upon a
         properly noticed conversion. Nothing herein shall limit a Holder's
         right to pursue actual damages or declare an Event of Default pursuant
         to Section 8 herein for the Company's failure to deliver Conversion
         Shares within the period specified herein and such Holder shall have
         the right to pursue all remedies available to it 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 pursuant to Section 4(d)(ii) by
         the fifth Trading Day after the Conversion Date, and if after such
         third Trading Day the Holder is required by its brokerage firm to
         purchase (in an open market transaction or otherwise) Common Stock to
         deliver in satisfaction of a sale by such Holder of the Conversion
         Shares which the Holder anticipated receiving upon such conversion (a
         "Buy-In"), then the Sellers, jointly and severally, shall (A) pay in
         cash to the Holder (in addition to any remedies available to or elected

                                       12
<PAGE>

         by the Holder) the amount by which (x) the Holder's total purchase
         price (including brokerage commissions, if any) for the Common Stock so
         purchased exceeds (y) the product of (1) the aggregate number of shares
         of Common Stock that such Holder anticipated receiving from the
         conversion at issue multiplied by (2) the actual sale price of the
         Common Stock at the time of the sale (including brokerage commissions,
         if any) giving rise to such purchase obligation 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 had the Company 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 at the time of the sale (including brokerage commissions, if
         any) giving rise to such purchase obligation was a total of $10,000
         under clause (A) of the immediately preceding sentence, the Sellers
         shall be required to pay the Holder $1,000. The Holder shall provide
         the Sellers written notice indicating the amounts payable to the Holder
         in respect of the Buy-In. Notwithstanding anything contained herein to
         the contrary, if a Holder requires the Company to make a payment in
         respect of a Buy-In for the failure to timely deliver certificates
         hereunder and the Company timely pays in full such amount, the Company
         shall not be required to pay such Holder partial liquidated damages
         under Section 4(d)(iv) in respect of the certificates resulting in such
         Buy-In.

                  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 solely for
         the purpose of issuance upon conversion of this Debenture and payment
         of interest on this Debenture, each as herein provided, free from
         preemptive rights or any other actual contingent purchase rights of
         persons other than the Holder (and the other holders of the
         Debentures), not less than such number of shares of the Common Stock as
         shall (subject to any additional requirements of the Company as to the
         reservation of such shares and 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 and validly authorized,
         issued and fully paid, nonassessable and, if the Registration Statement
         is then effective under the Securities Act, registered for public sale
         in accordance with such Registration Statement.

                  vii.     Fractional Shares. Upon a conversion hereunder the
         Company shall not be required to issue stock certificates representing
         fractions of shares of the Common Stock, but may if otherwise
         permitted, make a cash payment in respect of any final fraction of a

                                       13
<PAGE>

         share based on the VWAP at such time. If the Company elects not, or is
         unable, to make such a cash payment, the Holder shall be entitled to
         receive, in lieu of the final fraction of a share, one whole share of
         Common Stock.

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

Section 5.  Certain Adjustments.
---------   -------------------

         a)       Stock Dividends and Stock Splits. If the Company, at any time
while this Debenture is outstanding: (A) pays a stock dividend or otherwise
makes a distribution or distributions 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 pursuant to this Debenture, including as interest thereon), (B)
subdivides outstanding shares of Common Stock into a larger number of shares,
(C) combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by 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 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. 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 the Company or any Subsidiary
thereof, as applicable, at any time while this Debenture is outstanding, shall
offer, sell, grant any option to purchase or offer, sell or grant any right to
reprice its securities, 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 Conversion Price (such lower
price, the "Base Conversion Price" and such issuances collectively, a "Dilutive
Issuance"), as adjusted hereunder (if the holder of the Common Stock or Common

                                       14
<PAGE>

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 is
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 Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion
Price on such date of the Dilutive Issuance), then the Conversion Price shall be
reduced to equal the Base Conversion Price. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustment will be made under this Section
5(b) in respect of (i) an Exempt Issuance or (ii) the Secondary Offering if this
Debenture is subject to an Optional Redemption Notice delivered to the Holder
within 5 Trading Days of the Closing of the Secondary Offering; provided,
however, if this Debenture is not redeemed in full on the Optional Redemption
Date, an adjustment shall be made under this Section 5(b) in respect of the
Secondary Offering. 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, indicating therein the applicable issuance
price, or of 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,
after the date of such Dilutive Issuance the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price regardless of
whether the Holder accurately refers to the Base Conversion Price in the Notice
of Conversion.

         c)       Pro Rata Distributions. If the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock (and
not to the holders of the Debenture) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security, 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 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.

         d)       Fundamental Transaction. If, at any time while this Debenture
is outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (C)

                                       15
<PAGE>

any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of one 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 one 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 a Seller 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
paragraph (d) and insuring that this Debenture (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

         e)       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 treasury shares, if any) issued and
outstanding.

         f)       Notice to the Holder.
                  --------------------

                  i.       Adjustment to Conversion Price. Whenever the
         Conversion Price is adjusted pursuant to any of this Section 5, the
         Company shall promptly mail 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. If the Company issues
         a variable rate security, despite the prohibition thereon in the
         Purchase Agreement, the Company shall be deemed to have issued Common

                                       16
<PAGE>

         Stock or Common Stock Equivalents at the lowest possible conversion or
         exercise price at which such securities may be converted or exercised
         in the case of a Variable Rate Transaction (as defined in the Purchase
         Agreement).

                  ii.      Notice to Allow Conversion by Holder. If (A) the
         Company shall declare a dividend (or any other distribution) 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; (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 mailed to the Holder at its last addresses as it shall
         appear upon the stock books 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 convert this Debenture during the 20-day period
         commencing the date of such notice to the effective date of the event
         triggering such notice.

Section 6.  Optional Redemption.
---------   -------------------

         a)       Optional Redemption at Election of Company. Subject to the
provisions of this Section 6, at any time after the Effective Date and prior to
March 31, 2006, directly and solely out of the proceeds raised in the Secondary
Offering, 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 the
then outstanding Debentures in full for an amount, equal to the Optional
Redemption Amount on the 20th Trading Day following the Optional Redemption

                                       17
<PAGE>

Notice Date (such date, the "Optional Redemption Date" and such redemption, the
"Optional Redemption"). The Optional Redemption Amount is due in full on the
Optional Redemption Date. The Company may only effect an Optional Redemption if
during the period commencing on the Optional Redemption Notice Date through to
the Optional Redemption Date and through and including the date such shares of
Common Stock are issued to the Holder, each of the Equity Conditions shall have
been met. If any of the Equity Conditions shall cease to be satisfied at any
time during the required period, then the Holder may elect to nullify the
Optional Redemption Notice by notice to the Company within 3 Trading Days after
the first day on which any such Equity Condition has not been met (provided that
if, by a provision of the Transaction Documents, the Company is obligated to
notify the Holder of the non-existence of an Equity Condition, such notice
period shall be extended to the third Trading Day after proper notice from the
Company) in which case the Optional Redemption Notice shall be null and void, ab
initio. The Company covenants and agrees that it will honor all Notices of
Conversion tendered from the time of delivery of the Optional Redemption Notice
through the date all amounts owing thereon are due and paid in full.

         b)       Monthly Redemption. On each Monthly Redemption Date, the
Sellers, jointly and severally, shall redeem the Monthly Redemption Amount plus
accrued but unpaid interest, the sum of all liquidated damages and any other
amounts then owing to such Holder in respect of this Debenture (the "Monthly
Redemption"). The Monthly Redemption Amount due on each Monthly Redemption Date
shall be paid in cash; provided, however, as to any Monthly Redemption and upon
30 Trading Days' prior written irrevocable notice (the "Monthly Redemption
Notice" and the 30 Trading Day period immediately following the Monthly
Redemption Notice, the "Monthly Redemption Period"), in lieu of a cash
redemption payment the Company may elect to pay all or part of a Monthly
Redemption Amount in Conversion Shares (such dollar amount to be paid on a
Monthly Redemption Date in Conversion Shares, the "Monthly Redemption Share
Amount") based on a conversion price equal to 85% of the average of the three
lowest Closing Prices during the ten Trading Days immediately prior to the
Monthly Redemption Date, the "Monthly Conversion Price" and such period, the
"Monthly Conversion Period"); provided, further, that the Company may not pay
the Monthly Redemption Amount in Conversion Shares unless, (y) from the date the
Holder receives the duly delivered Monthly Redemption Notice through and until
the date such Monthly Redemption is paid in full, the Equity Conditions, unless
waived in writing by the Holder, have been satisfied and (z) as to such Monthly
Redemption, prior to such Monthly Redemption Period (but not more than 5 Trading
Days prior to the commencement of the Monthly Redemption Period), the Company
shall have delivered to the Holder's account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Monthly Redemption
Share Amount equal to the quotient of (x) the applicable Monthly Redemption
Share Amount divided by (y) the then Conversion Price (the "Pre-Redemption
Conversion Shares"). The Holder may convert, pursuant to Section 4(a), any
principal amount of this Debenture subject to a Monthly Redemption at any time
prior to the date that the Monthly Redemption Amount and all amounts owing
thereon are due and paid in full. Unless otherwise indicated by the Holder in
the applicable Notice of Conversion, any principal amount of this Debenture

                                       18
<PAGE>

converted during the applicable Monthly Redemption Period until the date the
Monthly Redemption Amount is paid in full shall be first applied to the
principal amount subject to the Monthly Redemption Amount payable in cash and
then to the Monthly Redemption Share Amount. Any principal amount of this
Debenture converted during the applicable Monthly Redemption Period in excess of
the Monthly Redemption Amount shall be applied against the last principal amount
of this Debenture scheduled to be redeemed hereunder, in reverse time order from
the Maturity Date; provided, however, if any such conversion is applied to such
Monthly Redemption Amount, the Pre-Redemption Conversion Shares, if any were
issued in connection with such Monthly Redemption or were not already applied to
such conversions, shall be first applied against such conversion. The Company
covenants and agrees that it will honor all Notice of Conversions tendered up
until such amounts are paid in full. The Company's determination to pay a
Monthly Redemption in cash, shares of Common Stock or a combination thereof
shall be applied ratably to all of the holders of the Debentures based on their
(or their predecessor's) initial purchases of Debentures pursuant to the
Purchase Agreement. At any time the Company delivers a notice to the Holder of
its election to pay the Monthly Redemption Amount in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing such
election.

         c)       Holder Redemption Right. Upon written notice from the Sellers
to the Holder of an Asset Sale (a "Sale of Asset Notice" and the date such
notice is deemed delivered hereunder, the "Sale of Asset Notice Date"), the
Holder shall have the right to deliver a written notice to the Company (a
"Holder Redemption Notice" and the date such notice is deemed delivered
hereunder, the "Holder Redemption Notice Date") of its irrevocable election to
cause the Sellers use 100% of the proceeds of such sale to redeem all or part of
the then outstanding principal amount of this Debenture for an amount, in cash,
equal to (i) the principal amount of this Debenture then outstanding, (ii)
accrued but unpaid interest and (iii) all liquidated damages and other amounts
due in respect of this Debenture (the "Holder Redemption" and such amount the
"Holder Redemption Amount"). The Sellers must give a Sale of Asset Notice within
5 Trading Days of each Asset Sale. The Holder Redemption Notice must be
delivered within 10 Trading Days after the Sale of Asset Notice Date. The Holder
Redemption Amount is due and payable on, and contingent upon, the closing or
occurrence of the sale. Notwithstanding anything herein to the contrary, the
Sellers may elect to exclude up to, in the aggregate, $15,000 of Asset Sales in
any calendar quarter from the provisions of this Section 6(c).

         d)       Redemption Procedure. The payment of cash pursuant to an
Optional Redemption shall be made on the Optional Redemption Date. If any
portion of the cash payment for an Optional Redemption or Holder Redemption
shall not be paid by the Sellers by the respective due date, interest shall
accrue thereon at the rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the payment of the Optional Redemption
Amount or Holder Redemption Amount, as applicable, plus all amounts owing
thereon is paid in full. Alternatively, if any portion of the Optional
Redemption Amount or Holder Redemption Amount, as applicable, remains unpaid

                                       19
<PAGE>

after such date, the Holders subject to such redemption may elect, by written
notice to the Company given at any time thereafter, to invalidate ab initio such
redemption, notwithstanding anything herein contained to the contrary, and, with
respect the failure to honor the Optional Redemption as applicable, 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 or its elections under Section 6(b) shall be
applied among the Holders of Debentures ratably. 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 fax delivery
of a Notice of Conversion to the Company.

Section 7.  Negative Covenants. So long as any portion of this Debenture is
outstanding, the Sellers will not and will not permit any of its Subsidiaries to
directly or indirectly:

         a)       other than Permitted Indebtedness, except with the prior
written consent of the Agent (as defined in the Security Agreement), enter into,
create, incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee, 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 certificate of incorporation, bylaws or other
charter documents so as to materially and adversely affect any rights of the
Holder other than amendments that effect all stakeholders equally and
proportionally;

         d)       repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of its securities other than as to the
Conversion Shares to the extent permitted or required under the Transaction
Documents or as otherwise permitted by the Transaction Documents;

         e)       enter into any agreement with respect to any of the foregoing;
or

         f)       pay cash dividends or distributions on any equity securities
of the Sellers.

Section 8.  Events of Default.
---------   -----------------

         a)       "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it 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):

                                       20
<PAGE>

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

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

                  iii.     a default or event of default (subject to any grace
         or cure period provided for in the applicable agreement, document or
         instrument) shall occur under (A) any of the Transaction Documents, or
         (B) any other material agreement, lease, document or instrument to
         which the Sellers or any Subsidiary is bound;

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

                  v.       (i) the Sellers or any of its Subsidiaries shall
         commence a case, as debtor, a case under any applicable bankruptcy or
         insolvency laws as now or hereafter in effect or any successor thereto,
         or the Sellers or any Subsidiary commences any other proceeding under
         any reorganization, arrangement, adjustment of debt, relief of debtors,
         dissolution, insolvency or liquidation or similar law of any
         jurisdiction whether now or hereafter in effect relating to the Sellers
         or any Subsidiary thereof or (ii) there is commenced a case against the
         Sellers or any Subsidiary thereof, under any applicable bankruptcy or
         insolvency laws, as now or hereafter in effect or any successor thereto
         which remains undismissed for a period of 60 days; or (iii) the Sellers
         or any Subsidiary thereof is adjudicated by a court of competent
         jurisdiction insolvent or bankrupt; or any order of relief or other
         order approving any such case or proceeding is entered; or (iv) the
         Sellers or any Subsidiary thereof suffers any appointment of any
         custodian or the like for it or any substantial part of its property
         which continues undischarged or unstayed for a period of 60 days; or
         (v) the Sellers or any Subsidiary thereof makes a general assignment
         for the benefit of creditors; or (vi) the Sellers shall fail to pay, or

                                       21
<PAGE>

         shall state that it is unable to pay, or shall be unable to pay, its
         debts generally as they become due; or (vii) the Sellers or any
         Subsidiary thereof shall call a meeting of its creditors with a view to
         arranging a composition, adjustment or restructuring of its debts; or
         (viii) the Sellers or any Subsidiary thereof shall by any act or
         failure to act expressly indicate its consent to, approval of or
         acquiescence in any of the foregoing; or (ix) any corporate or other
         action is taken by the Sellers or any Subsidiary thereof for the
         purpose of effecting any of the foregoing;

                  vi.      the Sellers or any Subsidiary shall default in 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 of the Sellers in an amount
         exceeding $150,000, whether such indebtedness now exists or shall
         hereafter be created and such default shall result in such indebtedness
         becoming or being declared due and payable prior to the date on which
         it would otherwise become due and payable;

                  vii.     the Common Stock shall not be eligible for quotation
         on or quoted for trading on a Trading Market and shall not again be
         eligible for and quoted or listed for trading thereon within five
         Trading Days;

                  viii.    the Company shall be a party to any Change of Control
         Transaction or Fundamental Transaction, shall agree to sell or dispose
         of all or in excess of 33% of its assets in one or more transactions
         (whether or not such sale would constitute a Change of Control
         Transaction) or shall redeem or repurchase more than a de minimis
         number of its outstanding shares of Common Stock or other equity
         securities of the Sellers (other than redemptions of Conversion Shares
         and repurchases of shares of Common Stock or other equity securities of
         departing officers and directors of the Sellers; provided such
         repurchases shall not exceed $100,000, in the aggregate, for all
         officers and directors during the term of this Debenture);

                  ix.      a Registration Statement shall not have been declared
         effective by the Commission on or prior to the 180 calendar day after
         the Closing Date;

                  x.       if, during the Effectiveness Period (as defined in
         the Registration Rights Agreement), the effectiveness of the
         Registration Statement lapses for any reason or the Holder shall not be
         permitted to resell Registrable Securities (as defined in the
         Registration Rights Agreement) under the Registration Statement, in
         either case, for more than 60 consecutive Trading Days or 90
         non-consecutive Trading Days during any 12 month period; provided,
         however, that in the event that the Company is negotiating a merger,
         consolidation, acquisition or sale of all or substantially all of its
         assets or a similar transaction and in the written opinion of counsel

                                       22
<PAGE>

         to the Company, the Registration Statement, would be required to be
         amended to include information concerning such transactions or the
         parties thereto that is not available or may not be publicly disclosed
         at the time, the Company shall be permitted an additional 10
         consecutive Trading Days during any 12 month period relating to such an
         event; or

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

                  xii.     the Sellers shall fail to notify the Holder within 5
         Trading Days of any Asset Sale; or

                  xiii.    Within 5 Trading Days of the Original Issue Date, the
         Sellers shall fail to deliver the documentation necessary to perfect
         the Holder's security interest in the Collateral set forth on Schedule
         2 attached hereto, including but not limited to, assignments of such
         Collateral.

         b)       Remedies Upon Event of Default. If any Event of Default
occurs, the full principal amount of this Debenture, together with interest and
other amounts owing in respect thereof, to the date of acceleration shall
become, at the Holder's election, immediately due and payable in cash. The
aggregate amount payable upon an Event of Default shall be equal to 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 the rate of 18% per annum, or
such lower maximum amount of interest permitted to be charged under applicable
law. Upon the payment in full of the Mandatory Default Amount on this entire
Debenture the Holder shall promptly surrender this Debenture to or as directed
by the Company. The Holder need not provide and the Sellers 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 declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under this Section
shall have been received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.

Section 9.  Miscellaneous.
---------   -------------

         a)       Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered

                                       23
<PAGE>

personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Sellers, at the address set forth above, facsimile
number facsimile number (732) 556-0365, Attn: James J. Mastriani, CFO and Chief
Legal Officer or such other address or facsimile number as the Sellers may
specify for such purposes by notice to the Holder delivered in accordance with
this Section. Any and all notices or other communications or deliveries to be
provided by the Sellers hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Sellers, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:30 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such 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 Sellers,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages (if any) 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 Sellers. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth herein.

         c)       Security Interest. This Debenture is a direct debt obligation
of the Sellers and, pursuant to the Security Agreement, is secured by all of the
assets of the Sellers; provided, however, that such security shall be subject to
the terms and conditions of the Subordination Agreement with Wells Fargo
Foothill, Inc.

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

         e)       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 the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,

                                       24
<PAGE>

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
any such court, 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 manner permitted by 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 with the
investigation, preparation and prosecution of such action or proceeding.

         f)       Waiver. Any waiver by the Sellers 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 Sellers 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 must be in writing.

         g)       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 applicable laws governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum permitted rate of
interest. The Sellers covenant (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 Sellers from paying all or any portion
of the principal of or interest on this Debenture as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Sellers (to the extent

                                       25
<PAGE>

it may lawfully do so) hereby expressly waive all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.

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

         i)       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.

         j)       Assumption. Any successor to the Sellers or surviving entity
in a Fundamental Transaction shall (i) assume in writing all of the obligations
of the Sellers 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) prior to such Fundamental
Transaction and (ii) to 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 amounts and the interest rates
of the Debentures held by the Holder and having similar ranking to this
Debenture, and 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.

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

                                       26
<PAGE>

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

                                       VELOCITY ASSET MANAGEMENT INC.

                                       By:______________________________________
                                          Name:
                                          Title:

                                       J. HOLDER INC.

                                       By:______________________________________
                                          Name:
                                          Title:

                                       27
<PAGE>

                                     ANNEX A

                              NOTICE OF CONVERSION

         The undersigned hereby elects to convert principal under the 10%
Convertible Senior Secured Debenture of Velocity Asset Management Inc., a
Delaware corporation (the "Company"), and J. Holder Inc., a New Jersey
corporation (the "JHolder", and the Company and the JHolder, each a "Seller" and
collectively the "Sellers"), due on April 27, 2007, into shares of common stock,
par value $.001 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. If shares 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 Sellers 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 Sellers that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Debenture.

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

Conversion calculations:

                            Date to Effect Conversion:

                            Principal Amount of Debenture to be Converted:

                            Payment of Interest in Common Stock __ yes  __ no
                                If yes, $_____ of Interest Accrued on Account of
                                Conversion at Issue.

                            Number of shares of Common Stock to be issued:

                            Signature:

                            Name:

                            Address:

                                       28
<PAGE>

                                   Schedule 1

                               CONVERSION SCHEDULE

The 10% Convertible Senior Secured Debentures due on April 27, 2007, in the
aggregate principal amount of $1,800,000issued by Velocity Asset Management
Inc., a Delaware corporation (the "Company"), and J. Holder Inc., a New Jersey
corporation. This Conversion Schedule reflects conversions made under Section 4
of the above referenced Debenture.

                                                     Dated:

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

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

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

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

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

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

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

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

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

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

                                     29
<PAGE>
<TABLE>
<CAPTION>

                                   Schedule 2

----------------------------------------------------------------------------------------------------------------------------------
             PROPERTY                                                                AMOUNT            DATE
R&R FILE     ADDRESS                               STATUS                            FUNDED           ACQUIRED      VALUATION
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
<S>          <C>                     <C>                                         <C>                 <C>           <C>
03831649     IN NURSING HOME      TWO PURCHASE MONEY MORTGAGES 100% OWNED:         $100,000.00         8/6/03       $230,000.00
             PROPERTIES           1) W. 38TH ST. $184K @ 7%                                                          + INTEREST
                                     DUE IN FULL 4/16/07.
                                  2) 11223 E. SO. ST. & 328
                                     NOTRE DAME AVE. $46,425.54
                                     @ 8%, INST. DUE 12/31/05 & FULL
                                     BALANCE DUE 12/31/06.
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
05838313     2 RICHMOND RD.,      DEED - FEE SIMPLE INTEREST. IN CONTRACT.         $107,900.00         4/1/05        $127,000.00
             WEST MILFORD, NJ     SALE IN NOVEMBER.
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
05838310     1316 RT. 33          MORTGAGE INTEREST. WRITS OF EXECUTION            $130,000.00         5/1/05        $150,000.00
             NEPTUNE, NJ          HAVE BEEN  SERVED. SALE DATES HAVE BEEN
                                  REQUESTED FROM SHERIFF ON NEPTUNE AND
                                  2 MERCER COUNTY, TRENTON,  PROPERTIES.
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
05839457     111 TALLEY RD.,      MORTGAGE INTEREST. SETTLED @ $73,893.00,         $ 34,402.94         5/31/05       $ 73,893.00
             FREEHOLD, N.J.       $15K PAID AND BALANCE W/IN 90 DAYS OR
                                  REVERTS TO FULL AMOUNT OF
                                  $84,806.44 AND FORECLOSE. DEFAULT DATE
                                  IS 11/29/05.
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
05839471     290 PULIS AVE.,      MORTGAGE INTEREST. SETTLEMENT APPROVED           $100,000.00         N/A           $200,000.00
             FRANKLIN LAKES       W/BK TRUSTEE  FOR 46% OF NET PROCEEDS OF
                                  SALE OF HO-HO-KUS PROPERTY. TRUSTEE
                                  APPLICATION FOR APPROVAL OF SALE @
                                  $715K  IS 10/17/05. CLOSE BEFORE 12/31/05.
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
05839641     700 JORDAN BLASS     DEED INTEREST. UNDER REHAB AND IS FOR SALE.      $116,500.00         6/2/05        $500,000.00
             AVE., MELBOURNE,     CLOSED ON $1MM CONST FINANCING; VALUATION
             FLA.                 ASSUMES SALE AT $5.2 MM (48% PROFIT)
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
05840435     62 RICK RD.          DEED INTEREST. TAXES PAID AT $86,190.03.         $375,649.86         7/5/05        $500,000.00
             ALEXANDRIA, NJ       WE HAVE DBTR FULL COOPORATION. LISTED FOR
                                  SALE. UPDATING AND CLEANUP $4K.
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
</TABLE>

                                       30
<PAGE>
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
<S>          <C>                     <C>                                         <C>                 <C>           <C>
TX020412     73 DARCY ST.,        CASH ESCROW. $61,000.00 PROCEEDS IN              $ 20,000.00                       $ 61,000.00
             NEWARK, N.J.         ESCROW FOR TURN OVER 3/1/06 UPON
                                  EXPIRATION OF FED TAX LIEN.
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
05840887     108 FRANKLIN ST.,    CONTRACT TO PURCHASE PURCHASED DISTRESSED        $ 23,000.00         9/16/05       $ 50,000.00
             HACKETTSTOWN, NJ     1 FAMILY HOUSE TO REHAB & SELL. PRICE:
                                  $229K. CLOSE IN OCT.
----------  -----------------  -----------------------------------------------  ----------------  -------------  ---------------
05840891     11 EUGENE RD.,       BID/CONTRACT TO PURCHASE PURCHASED AT SH         $240,000.00         9/30/05       $415,000.00
             SADDLE RIVER, NJ     FORECLOSURE SALE 9/30/05 FOR $1.169MM.
                                  VALUE $1.5MM+. AWAITING DEED, ETC.
                                  SEARCHES ORDERED. CLOSE IN NOVEMBER.
================================================================================================================================
</TABLE>

                                       31

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