Document:

Unassociated Document

Exhibit
4.3

THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO HYBRID FUEL SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.

	 	
      Right
      to Purchase _________ shares of Common Stock of Hybrid Fuel Systems, Inc.
      (subject to adjustment as provided herein)

CLASS
A COMMON STOCK PURCHASE WARRANT

 

No. 2005-A-001      Issue
Date: March 31, 2005

 

HYBRID
FUEL SYSTEMS, INC., a corporation organized under the laws of the State of
Georgia (the “Company”), hereby certifies that, for value received, ALPHA
CAPITAL AKTIENGESELLSCHAFT, Pradafant 7, 9490 Furstentums, Vaduz, Lichtenstein,
Fax: 011-42-32323196, or its
assigns (the “Holder”), is entitled, subject to the terms set forth below, to
purchase from the Company at any time after the Issue Date until 5:00 p.m.,
E.S.T on the fifth (5th)
anniversary of the Issue Date (the “Expiration Date”), up to ________ fully paid
and nonassessable shares of Common Stock at a per share purchase price equal to
the lesser of $0.81, or 101% of the closing bid price of the Common Stock as
reported by Bloomberg L.P. for the Principal Market (as defined in the
Subscription Agreement) for the last trading day preceding the Initial Closing
Date. The aforedescribed purchase price per share, as adjusted from time to time
as herein provided, is referred to herein as the "Purchase Price." The number
and character of such shares of Common Stock and the Purchase Price are subject
to adjustment as provided herein. The Company may reduce the Purchase Price
without the consent of the Holder. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain Subscription
Agreement (the “Subscription
Agreement”), dated
March 31, 2005, entered into by the Company and Holder’s of the Class A
Warrants.

As used
herein the following terms, unless the context otherwise requires, have the
following respective meanings: 

 

(a) The term
“Company” shall include Hybrid Fuel Systems, Inc. and any corporation which
shall succeed or assume the obligations of Hybrid Fuel Systems, Inc. hereunder.

 

(b) The term
“Common Stock” includes (a) the Company's Common Stock, $.001 par value per
share, as authorized on the date of the Subscription Agreement, and (b) any
other securities into which or for which any of the securities described in
(a) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.

 

(c) The term
“Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
holder of the Warrant at any time shall be entitled to receive, or shall have
received, on the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 5 or otherwise. 

 

1

(d) The term
“Warrant Shares” shall mean the Common Stock issuable upon exercise of this
Warrant.

 

1. Exercise
of Warrant.

 

1.1. Number
of Shares Issuable upon Exercise. From
and after the Issue Date through and including the Expiration Date, the Holder
hereof shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this
Warrant in part in accordance with subsection 1.3, shares of Common Stock
of the Company, subject to adjustment pursuant to Section 4.

 

1.2. Full
Exercise. This
Warrant may be exercised in full by the Holder hereof by delivery of an original
or facsimile copy of the form of subscription attached as Exhibit A hereto
(the “Subscription Form") duly executed by such Holder and surrender of the
original Warrant within four (4) days of exercise, to the Company at its
principal office or at the office of its Warrant Agent (as provided
hereinafter), accompanied by payment, in cash, wire transfer or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then exercisable by the Purchase Price then in effect. 

 

1.3. Partial
Exercise. This
Warrant may be exercised in part (but not for a fractional share) by surrender
of this Warrant in the manner and at the place provided in subsection 1.2
except that the amount payable by the Holder on such partial exercise shall be
the amount obtained by multiplying (a) the number of whole shares of Common
Stock designated by the Holder in the Subscription Form by (b) the Purchase
Price then in effect. On any such partial exercise, the Company, at its expense,
will forthwith issue and deliver to or upon the order of the Holder hereof a new
Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may request, the whole
number of shares of Common Stock for which such Warrant may still be
exercised.

 

1.4. Fair
Market Value. Fair
Market Value of a share of Common Stock as of a particular date (the
"Determination Date") shall mean: 

 

(a) If the
Company's Common Stock is traded on an exchange or is quoted on the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ"), National
Market System, the NASDAQ SmallCap Market or the American Stock Exchange, LLC,
then the closing or last sale price, respectively, reported for the last
business day immediately preceding the Determination Date;

 

(b) If the
Company's Common Stock is not traded on an exchange or on the NASDAQ National
Market System, the NASDAQ SmallCap Market or the American Stock Exchange, Inc.,
but is traded in the over-the-counter market, then the average of the closing
bid and ask prices reported for the last business day immediately preceding the
Determination Date;

 

(c) Except as
provided in clause (d) below, if the Company's Common Stock is not publicly
traded, then as the Holder and the Company agree, or in the absence of such an
agreement, by arbitration in accordance with the rules then standing of the
American Arbitration Association, before a single arbitrator to be chosen from a
panel of persons qualified by education and training to pass on the matter to be
decided; or

 

(d) If the
Determination Date is the date of a liquidation, dissolution or winding up, or
any event deemed to be a liquidation, dissolution or winding up pursuant to the
Company's charter, then all amounts to be payable per share to holders of the
Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.

 

2

1.5. Company
Acknowledgment. The
Company will, at the time of the exercise of the Warrant, upon the request of
the Holder hereof acknowledge in writing its continuing obligation to afford to
such Holder any rights to which such Holder shall continue to be entitled after
such exercise in accordance with the provisions of this Warrant. If the Holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such Holder any such
rights.

 

1.6. Trustee
for Warrant Holders. In the
event that a bank or trust company shall have been appointed as trustee for the
Holder of the Warrants pursuant to Subsection 3.2, such bank or trust
company shall have all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the Company or
such successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor, as the case may be, on exercise of this
Warrant pursuant to this Section 1. 

 

1.7 Delivery
of Stock Certificates, etc. on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder hereof as the record owner of
such shares as of the close of business on the date on which this Warrant shall
have been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within four (4) business days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder hereof, or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.

 

2. Cashless
Exercise.

 

(a) If a
Registration Statement (as defined in the Subscription Agreement) (“Registration
Statement”) is effective and the Holder may sell its shares of Common Stock upon
exercise hereof pursuant to the Registration Statement, this Warrant may be
exercisable in whole or in part for cash only as set forth in Section 1 above.
If no such Registration Statement is available during the time that such
Registration Statement is required to be effective pursuant to the terms of the
Subscription Agreement, then payment upon exercise may be made at the option of
the Holder either in (i) cash, wire transfer or by certified or official
bank check payable to the order of the Company equal to the applicable aggregate
Purchase Price, (ii) by delivery of Common Stock issuable upon exercise of the
Warrants in accordance with Section (b) below or (iii) by a
combination of any of the foregoing methods, for the number of Common Stock
specified in such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the holder
per the terms of this Warrant) and the holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.

 

(b) If the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, the holder may elect to receive shares equal to the value
(as determined below) of this Warrant (or the portion thereof being cancelled)
by surrender of this Warrant at the principal office of the Company together
with the properly endorsed Subscription Form in which event the Company shall
issue to the holder a number of shares of Common Stock computed using the
following formula:

 

3

X=Y
(A-B)

   A

 

	 	 	 	 
	 	 	 	 
	
       Where  
	X= 	 	the number of shares of Common Stock to be
      issued to the holder  
	 	 	 	 
	
       
	Y=	 	
      the
      number of shares of Common Stock purchasable under the Warrant or, if only
      a portion of the Warrant is being exercised, the portion of the Warrant
      being exercised (at the date of such calculation)

	 	 	 	 
	
       
	A=	 	
      the
      Fair Market Value of one share of the Company’s Common Stock (at the date
      of such calculation) 

	 	 	 	 
	
       
	B= 	 	
      Purchase
      Price (as adjusted to the date of such
  calculation) 

 

 

1.  The
Holder may employ the cashless exercise feature described in Section (b) above
only during the pendency of a Non-Registration Event as described in Section 11
of the Subscription Agreement.

 

For
purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood
and acknowledged that the Warrant Shares issued in a cashless exercise
transaction shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the date
this Warrant was originally issued pursuant to the Subscription
Agreement.

 

3. Adjustment
for Reorganization, Consolidation, Merger, etc.

 

3.1. Reorganization,
Consolidation, Merger, etc. In case
at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person or
(c) transfer all or substantially all of its properties or assets to any
other person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition to the consummation of such a
transaction, proper and adequate provision shall be made by the Company whereby
the Holder of this Warrant, on the exercise hereof as provided in
Section 1, at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other Securities)
issuable on such exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which such Holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such Holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as
provided in Section 4.

 

3.2. Dissolution. In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and
other securities and property (including cash, where applicable) receivable by
the Holder of the Warrants after the effective date of such dissolution pursuant
to this Section 3 to a bank or trust company (a "Trustee") having its
principal office in New York, NY, as trustee for the Holder of the
Warrants. 

 

4

3.3. Continuation
of Terms. Upon
any reorganization, consolidation, merger or transfer (and any dissolution
following any transfer) referred to in this Section 3, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to
the Other Securities and property receivable on the exercise of this Warrant
after the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may be,
and shall be binding upon the issuer of any Other Securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In
the event this Warrant does not continue in full force and effect after the
consummation of the transaction described in this Section 3, then only in
such event will the Company's securities and property (including cash, where
applicable) receivable by the Holder of the Warrants be delivered to the Trustee
as contemplated by Section 3.2.

 

3.4 Share
Issuance. Until
the Expiration Date, if the Company shall issue any Common Stock except for the
Excepted Issuances (as defined in the Subscription Agreement), prior to the
complete exercise of this Warrant for a consideration less than the Purchase
Price that would be in effect at the time of such issue, then, and thereafter
successively upon each such issue, the Purchase Price shall be reduced to such
other lower issue price. For purposes of this adjustment, the issuance of any
security or debt instrument of the Company carrying the right to convert such
security or debt instrument into Common Stock or of any warrant, right or option
to purchase Common Stock shall result in an adjustment to the Purchase Price
upon the issuance of the above-described security, debt instrument, warrant,
right, or option and again at any time upon any subsequent issuances of shares
of Common Stock upon exercise of such conversion or purchase rights if such
issuance is at a price lower than the Purchase Price in effect upon such
issuance. The reduction of the Purchase Price described in this Section 3.4 is
in addition to the other rights of the Holder described in the Subscription
Agreement.

 

4. Extraordinary
Events Regarding Common Stock. In the
event that the Company shall (a) issue additional shares of the Common
Stock as a dividend or other distribution on outstanding Common Stock,
(b) subdivide its outstanding shares of Common Stock, or (c) combine
its outstanding shares of the Common Stock into a smaller number of shares of
the Common Stock, then, in each such event, the Purchase Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
then Purchase Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 4. The number of shares of Common
Stock that the Holder of this Warrant shall thereafter, on the exercise hereof
as provided in Section 1, be entitled to receive shall be adjusted to a
number determined by multiplying the number of shares of Common Stock that would
otherwise (but for the provisions of this Section 4) be issuable on such
exercise by a fraction of which (a) the numerator is the Purchase Price
that would otherwise (but for the provisions of this Section 4) be in
effect, and (b) the denominator is the Purchase Price in effect on the date
of such exercise.

 

5. Certificate
as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its expense
will promptly cause its Chief Financial Officer or other appropriate designee to
compute such adjustment or readjustment in accordance with the terms of the
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or
receivable by the Company for any additional shares of Common Stock (or Other
Securities) issued or sold or deemed to have been issued or sold, (b) the
number of shares of Common Stock (or Other Securities) outstanding or deemed to
be outstanding, and (c) the Purchase Price and the number of shares of
Common Stock to be received upon exercise of this Warrant, in effect immediately
prior to such adjustment or readjustment and as adjusted or readjusted as
provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to the Holder of the Warrant and any Warrant Agent of the Company
(appointed pursuant to Section 11 hereof).

 

5

6. Reservation
of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrant. This
Warrant entitles the Holder hereof to receive copies of all financial and other
information distributed or required to be distributed to the holders of the
Company's Common Stock. 

 

7. Assignment;
Exchange of Warrant. Subject
to compliance with applicable securities laws, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a
"Transferor"). On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
“Transferor Endorsement Form") and together with an opinion of counsel
reasonably satisfactory to the Company that the transfer of this Warrant will be
in compliance with applicable securities laws, the Company at its expense,
twice, only, but with payment by the Transferor of any applicable transfer
taxes, will issue and deliver to or on the order of the Transferor thereof a new
Warrant or Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor. No such transfers shall result in a public
distribution of the Warrant.

 

8. Replacement
of Warrant. On
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction of this Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of this Warrant, the
Company at its expense, twice only, will execute and deliver, in lieu thereof, a
new Warrant of like tenor.

 

9. Registration
Rights. The
Holder of this Warrant has been granted certain registration rights by the
Company. These registration rights are set forth in the Subscription Agreement.
The terms of the Subscription Agreement are incorporated herein by this
reference.

 

10. Maximum
Exercise. The
Holder shall not be entitled to exercise this Warrant on an exercise date nor
may the Company exercise its right to give a Call Notice (as defined in Section
11) in connection with that number of Common Stock which would be in excess of
the sum of (i) the number of shares of Common Stock beneficially owned by
the Holder and its affiliates on an exercise date or Call Date, and
(ii) the number of Common Stock issuable upon the exercise of this Warrant
with respect to which the determination of this limitation is being made on an
exercise date or Call Date, which would result in beneficial ownership by the
Holder and its affiliates of more than 4.99% of the outstanding Common Stock on
such date. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Holder shall not be limited to aggregate exercises
which would result in the issuance of more than 4.99%. The
Holder may waive the conversion limitation described in this Section 10, in
whole or in part and increase the amount that may be beneficially owned from
4.99% to 9.99%, upon and effective after 61 days prior written notice to the
Company. The
Holder may allocate which of the equity of the Company deemed beneficially owned
by the Subscriber shall be included in the 4.99% amount described above and
which shall be allocated to the excess above 4.99%.

 

11. Call. The
Company shall have the option to "call" the exercise of up to 50% of the shares
issuable upon exercise of this Warrant (the "Warrant Call") in accordance with
and governed by the following:

 

6

(a) The
Company shall exercise the Warrant Call by giving to the Warrant Holder a
written notice of call (the "Call Notice") during the period in which the
Warrant Call may be exercised. The effective date of each Call Notice (the “Call
Date”) is the date on which notice is effective under the notice provision of
Section 15 of this Warrant.

 

(b) The
Company's right to exercise the Warrant Call shall commence thirty trading days
after the actual effective date of a Registration Statement described in Section
11.1(iv) of the Subscription Agreement and end thirty trading days prior to the
Expiration Date.

 

(c) The
number of shares of Common Stock to be issued upon exercise of the Warrant which
are subject to a Call Notice must be registered in a Registration Statement
effective from thirty (30) trading days prior to the Call Date and through the
date such Common Stock is actually delivered to the Warrant Holder (“Delivery
Date”).

(d) A Call
Notice may be given not sooner than fifteen trading days after the prior Call
Date.

(e) A Call
Notice may be given by the Company in connection with shares of Common Stock
issuable upon exercise of the Warrant only within ten days after the Common
Stock has had a closing price as reported for the Principal Market (as defined
in the Subscription Agreement) equal to or more than two hundred percent (200%)
of the Purchase Price for thirty (30) consecutive trading days (“Lookback
Period”). 

(f) The
Common Stock must be listed on the Principal Market for the Lookback Period and
through the Delivery Date.

 

(g) The
Company shall not have received a notice from the Principal Market during the
ninety calendar days prior to the Call Date that the Company or its Common Stock
does not meet the requirements for continued quotation, listing or trading on
the Principal Market.

 

(h) The
Company and the Common Stock shall meet the requirements for continued
quotation, listing or trading on the Principal Market for the Lookback Period
and through the Delivery Date.

 

(i) Unless
otherwise agreed to by the Holder of this Warrant, a Call Notice must be given
to all Warrant Holders who receive Warrants similar to this Warrant (in terms of
exercise price and other principal terms) issued on or about the same Issue Date
as this Warrant, in proportion to the amounts of Common Stock which may be
purchased by the respective Warrant Holders in accordance with the respective
Warrants held by each.

 

(j) The
Warrant Holder shall exercise his Warrant rights and purchase the Called Warrant
Shares and pay for same within fourteen trading days after the Call Date. If the
Warrant Holder fails to timely pay the amount required by the Warrant Call, the
Company’s sole remedy shall be to cancel a corresponding amount of this
Warrant.

 

(k) The
Company may not exercise the right to Call this Warrant after the occurrence of
a default by the Company of a material term of this Warrant or the Subscription
Agreement or the Notes referred to in the Subscription Agreement.

 

12. Warrant
Agent. The
Company may, by written notice to the Holder of the Warrant, appoint an agent (a
“Warrant Agent”) for the purpose of issuing Common Stock (or Other Securities)
on the exercise of this Warrant pursuant to Section 1, exchanging this
Warrant pursuant to Section 7, and replacing this Warrant pursuant to
Section 8, or any of the foregoing, and thereafter any such issuance,
exchange or replacement, as the case may be, shall be made at such office by
such Warrant Agent. 

 

7

13. Transfer
on the Company's Books. Until
this Warrant is transferred on the books of the Company, the Company may treat
the registered holder hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary. 

 

14. Warrant
Exercise Compensation. The
Company has agreed to pay to the entity identified on Schedule 8 to the
Subscription Agreement (“Broker”) Warrant Exercise Compensation as described in
the Subscription Agreement equal to five percent (5%) of the cash proceeds
payable to the Company upon exercise of the Warrant. The Warrant Exercise
Compensation will be paid by the Company to the Broker not later than the fifth
(5th)
business day after the Company receives cash proceeds from the exercise of this
Warrant. The Holder of the Warrant has no obligation or responsibility to pay
Warrant Exercise Compensation.

15. Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company to: Hybrid
Fuel Systems, Inc., 12409 Telecom Drive, Tampa, FL 33637, Attn: Mark Clancy,
CEO, telecopier number: (813) 979-9224, with a
copy by telecopier only to: Sichenzia, Ross, Friedman & Ference LLP, 1065
Avenue of the Americas, New York, NY 10018, Attn: Darrin M. Ocasio, Esq.,
telecopier number: (212) 930-9725 , and (ii) if to the Broker, to: KMR Capital,
LLC, a division of Midamerica Financial Services, Inc., 1820 E. 20th Street,
Suite 28, Joplin, MO 64804.

 

16. Miscellaneous. This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. This Warrant shall
be construed and enforced in accordance with and governed by the laws of New
York. Any dispute relating to this Warrant shall be adjudicated in New York
County in the State of New York. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof. The invalidity or unenforceability of any provision hereof shall in no
way affect the validity or enforceability of any other provision. 

 

8

IN
WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above. 

	 	 	 
	 	HYBRID FUEL SYSTEMS,
      INC. 
	 
 	 
 	 
 
		By:  	/s/ Mark
      Clancy                              
      
	 	Name: Mark Clancy
	 	Title: CEO
	Witness: 	 
	 	 
	                                         
      	 
	 	 

9

Exhibit A

FORM OF
SUBSCRIPTION

(to be
signed only on exercise of Warrant)

TO:
HYBRID FUEL SYSTEMS, INC. 

 

The
undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable
box):

___ ________
shares of the Common Stock covered by such Warrant; or___ the
maximum number of shares of Common Stock covered by such Warrant pursuant to the
cashless exercise procedure set forth in Section 2.

The
undersigned herewith makes payment of the full purchase price for such shares at
the price per share provided for in such Warrant, which is $___________. Such
payment takes the form of (check applicable box or boxes):

___ $__________
in lawful money of the United States; and/or ___ the
cancellation of such portion of the attached Warrant as is exercisable for a
total of _______ shares of Common Stock (using a Fair Market Value of $_______
per share for purposes of this calculation); and/or

___ the
cancellation of such number of shares of Common Stock as is necessary, in
accordance with the formula set forth in Section 2, to exercise this
Warrant with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in
Section 2.

The
undersigned requests that the certificates for such shares be issued in the name
of, and delivered to _____________________________________________________ whose
address is
__________________________________________________________________________________________________________________________________________________________________________

__________________________________________________________________________________________________________________________________________________________________________

 

Number of
Shares of Common Stock Beneficially Owned on the date of exercise: Less than
five percent (5%) of the outstanding Common Stock of Hybrid Fuel Systems,
Inc.

The
undersigned represents and warrants that all offers and sales by the undersigned
of the securities issuable upon exercise of the within Warrant shall be made
pursuant to registration of the Common Stock under the Securities Act of 1933,
as amended (the "Securities Act"), or pursuant to an exemption from registration
under the Securities Act.

 

 

	
      Dated:___________________ 
	 	 	                                                                    
	 	 	 	
      (Signature
      must conform to name of holder as specified on the face of the
      Warrant) 

	 	 	 	 
	 	 	 	                                                                     
	 	 	 	                                                                     
	 	 	 	
      (Address) 

 

 

10

Exhibit B

FORM OF
TRANSFEROR ENDORSEMENT

(To be
signed only on transfer of Warrant)

For value
received, the undersigned hereby sells, assigns, and transfers unto the
person(s) named below under the heading "Transferees" the right represented by
the within Warrant to purchase the percentage and number of shares of Common
Stock of Hybrid Fuel Systems, Inc. to which the within Warrant relates specified
under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of Hybrid Fuel
Systems, Inc. with full power of substitution in the premises.

 

	
      Transferees
	
      Percentage
      Transferred
	
      Number
      Transferred

	 	 	 
	 	 	 
	 	 	 

 

	Dated: ______________,
    ___________ 	 	                                                                                           
	 	 	
      (Signature
      must conform to name of holder as specified on the face of the
      warrant) 

	Signed in the presence of: 	 	 
	                                                                                           	 	                                                                                            
	
       (Name)
	 	                                                                                            
	 	 	
       (address)

	ACCEPTED AND AGREED: 	 	 
	[TRANSFEREE] 	 	                                                                                            
	 	 	                                                                                            
	                                                                                           	 	
       (address)

	
      (Name) 
	 	 

 

11Unassociated Document

Exhibit
4.4

SECURITY
AGREEMENT

1. Identification.

This
Security Agreement (the "Agreement"), dated as of March 31, 2005, is entered
into by and between Hybrid Fuel Systems, Inc., a Georgia corporation (“Debtor”),
and Barbara Mittman, as collateral agent acting in the manner and to the extent
described in the Collateral Agent Agreement defined below (the "Collateral
Agent"), for the benefit of the parties identified on Schedule A hereto
(collectively, the "Lenders").

2. Recitals.

2.1 The
Lenders have made or are making loans to Debtor (the "Loans"). It is beneficial
to Debtor that the Loans were made and are being made.

2.2 The Loans
are evidenced by certain convertible promissory notes (each a “Convertible
Note”) issued by Debtor on or about the date of this Agreement pursuant to
subscription agreements (each a “Subscription Agreement”) to which Debtor and
Lenders are parties. The Notes are further identified on Schedule A hereto and
were and will be executed by Debtor as “Borrower” or “Debtor” for the benefit of
each Lender as the “Holder” or “Lender” thereof.

2.3 In
consideration of the Loans made by Lenders to Debtor and for other good and
valuable consideration, and as security for the performance by Debtor of its
obligations under the Notes and as security for the repayment of the Loans and
all other sums due from Debtor to Lenders arising under the Notes presently
outstanding and to be outstanding in the future, Subscription Agreements, and
any other agreement between or among them (collectively, the "Obligations"),
Debtor, for good and valuable consideration, receipt of which is acknowledged,
has agreed to grant to the Collateral Agent, for the benefit of the Lenders, a
security interest in the Collateral (as such term is hereinafter defined), on
the terms and conditions hereinafter set forth. Obligations include all future
advances by Lenders to Debtor advanced on a pro rata basis by all Lenders on
substantially the same terms or pursuant to the Subscription
Agreement.

2.4 The
Lenders have appointed Barbara Mittman as Collateral Agent pursuant to that
certain Collateral Agent Agreement dated at or about March 31, 2005 (“Collateral
Agent Agreement”), among the Lenders and Collateral Agent.

2.5 The
following defined terms which are defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof are used herein as so
defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles,
Instruments, Inventory and Proceeds.

3. Grant
of General Security Interest in Collateral.

1.     As
security for the Obligations of Debtor, Debtor hereby grants the Collateral
Agent, for the benefit of the Lenders, a security interest in the
Collateral.

2.     “Collateral”
shall mean all of the following property of Debtor:

	 	
      (A)
	
      All
      now owned and hereafter acquired right, title and interest of Debtor in,
      to and in respect of all Accounts, Goods, real or personal property, all
      present and future books and records relating to the foregoing and all
      products and Proceeds of the foregoing, and as set forth
      below:

(i) Accounts: All now
owned and hereafter acquired right, title and interest of Debtor in, to and in
respect of all: Accounts, interests in goods represented by Accounts, returned,
reclaimed or repossessed goods with respect thereto and rights as an unpaid
vendor; contract rights; Chattel Paper; investment property; General Intangibles
(including but not limited to, tax and duty claims and refunds, registered and
unregistered patents, trademarks, service marks, certificates, copyrights trade
names, applications for the foregoing, trade secrets, goodwill, processes,
drawings, blueprints, customer lists, licenses, whether as licensor or licensee,
chooses in action and other claims, and existing and future leasehold interests
in equipment, real estate and fixtures); Documents; Instruments; letters of
credit, bankers’ acceptances or guaranties; cash moneys, deposits; securities,
bank accounts, deposit accounts, credits and other property now or hereafter
owned or held in any capacity by Debtor, as well as its affiliates, agreements
or property securing or relating to any of the items referred to
above;

(ii) Goods: All now
owned and hereafter acquired right, title and interest of Debtor in, to and in
respect of goods, including, but not limited to:

(a) All
Inventory, wherever located, whether now owned or hereafter acquired, of
whatever kind, nature or description, including all raw materials,
work-in-process, finished goods, and materials to be used or consumed in Debtor’
business; finished goods, timber cut or to be cut, oil, gas, hydrocarbons, and
minerals extracted or to be extracted, and all names or marks affixed to or to
be affixed thereto for purposes of selling same by the seller, manufacturer,
lessor or licensor thereof and all Inventory which may be returned to Debtor by
its customers or repossessed by Debtor and all of Debtor’ right, title and
interest in and to the foregoing (including all of Debtor’ rights as a seller of
goods);

(b) All
Equipment and fixtures, wherever located, whether now owned or hereafter
acquired, including, without limitation, all machinery, motor vehicles,
furniture and fixtures, and any and all additions, substitutions, replacements
(including spare parts), and accessions thereof and thereto (including, but not
limited to Debtor’ rights to acquire any of the foregoing, whether by exercise
of a purchase option or otherwise);

(iii) Property: All now
owned and hereafter acquired right, title and interests of Debtor in, to and in
respect of any real or other personal property in or upon which Debtor has or
may hereafter have a security interest, lien or right of setoff; 

(iv) Books
and Records: All
present and future books and records relating to any of the above including,
without limitation, all computer programs, printed output and computer readable
data in the possession or control of the Debtor, any computer service bureau or
other third party; and

(v) Products
and Proceeds: All
products and Proceeds of the foregoing in whatever form and wherever located,
including, without limitation, all insurance proceeds and all claims against
third parties for loss or destruction of or damage to any of the
foregoing.

(B) All now
owned and hereafter acquired right, title and interest of Debtor in, to and in
respect of the following:

(i) the
shares of stock, partnership interests, member interests or other equity
interests at any time and from time to time acquired by Debtor of any and all
entities now or hereafter existing including but not limited to the Shares of
stock of the subsidiaries identified on Annex 1 to this agreement, all or a
portion of such stock or other equity interests which are acquired by such
entities at any time (such entities, together with the existing issuers, being
hereinafter referred to collectively as the "Pledged Issuers" and individually
as a "Pledged Issuer"), the certificates representing such shares, partnership
interests, member interests or other interests all options and other rights,
contractual or otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares, partnership interests, member interests or other
interests;

 

(ii) all
additional shares of stock, partnership interests, member interests or other
equity interests from time to time acquired by Debtor, of any Pledged Issuer,
the certificates representing such additional shares, all options and other
rights, contractual or otherwise, in respect thereof and all dividends,
distributions, cash, instruments, investment property and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such additional shares, interests or equity; and

(iii) all
security entitlements of Debtor in, and all Proceeds of any and all of the
foregoing in each case, whether now owned or hereafter acquired by Debtor and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, lien, claim or otherwise).

3.3 The
Collateral Agent is hereby specifically authorized, after the Maturity Date
(defined in the Notes) accelerated or otherwise, or after an Event of Default
(as defined herein) and the expiration of any applicable cure period, to
transfer any Collateral into the name of the Collateral Agent and to take any
and all action deemed advisable to the Collateral Agent to remove any transfer
restrictions affecting the Collateral.

4. Perfection
of Security Interest.

4.1 Debtor
hereby authorizes the Collateral Agent at any time and from time to time to file
any UCC-1 Financing Statements. The Collateral Agent is instructed to prepare
and file at Debtor’s cost and expense, financing statements in such
jurisdictions deemed advisable to the Collateral Agent, including but not
limited to Georgia and Florida. The Financing Statements are deemed to have been
filed for the benefit of the Collateral Agent and Lenders identified on Schedule
A hereto.

4.2  All
other certificates and instruments constituting Collateral from time to time
required to be pledged to Collateral Agent pursuant to the terms hereof (the
"Additional Collateral") shall be delivered to Collateral Agent promptly upon
receipt thereof by or on behalf of Debtor. All such certificates and instruments
shall be held by or on behalf of Collateral Agent pursuant hereto and shall be
delivered in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment or undated stock powers
executed in blank, all in form and substance satisfactory to Collateral Agent.
If any Collateral consists of uncertificated securities, unless the immediately
following sentence is applicable thereto, Debtor shall cause Collateral Agent
(or its custodian, nominee or other designee) to become the registered holder
thereof, or cause each issuer of such securities to agree that it will comply
with instructions originated by Collateral Agent with respect to such securities
without further consent by Debtor. If any Collateral consists of security
entitlements, Debtor shall transfer such security entitlements to Collateral
Agent (or its custodian, nominee or other designee) or cause the applicable
securities intermediary to agree that it will comply with entitlement orders by
Collateral Agent without further consent by Debtor. 

4.3 Within
five (5) days after the receipt by Debtor of any Additional Collateral, a Pledge
Amendment, duly executed by Debtor, in substantially the form of Annex I hereto
(a "Pledge Amendment"), shall be delivered to Collateral Agent in respect of the
Additional Collateral to be pledged pursuant to this Agreement. Debtor hereby
authorizes Collateral Agent to attach each Pledge Amendment to this Agreement
and agrees that all certificates or instruments listed on any Pledge Amendment
delivered to Collateral Agent shall for all purposes hereunder constitute
Collateral.

4.4 If Debtor
shall receive, by virtue of Debtor being or having been an owner of any
Collateral, any (i) stock certificate (including, without limitation, any
certificate representing a stock dividend or distribution in connection with any
increase or reduction of capital, reclassification, merger, consolidation, sale
of assets, combination of shares, stock split, spin-off or split-off),
promissory note or other instrument, (ii) option or right, whether as an
addition to, substitution for, or in exchange for, any Collateral, or otherwise,
(iii) dividends payable in cash (except such dividends permitted to be retained
by Debtor pursuant to Section 5.2 hereof) or in securities or other property or
(iv) dividends or other distributions in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, Debtor shall receive such stock certificate,
promissory note, instrument, option, right, payment or distribution in trust for
the benefit of Collateral Agent, shall segregate it from Debtor's other property
and shall deliver it forthwith to Collateral Agent, in the exact form received,
with any necessary endorsement and/or appropriate stock powers duly executed in
blank, to be held by Collateral Agent as Collateral and as further collateral
security for the Obligations.

5. Distribution
on Liquidation.

5.1 If any
sum is paid as a liquidating distribution on or with respect to the Collateral,
Debtor shall deliver same to the Collateral Agent to be applied to the
Obligations, then due, in accordance with the terms of the Convertible
Notes.

5.2 So long
as no Event of Default exists, Debtor shall be entitled (i) to exercise all
voting power pertaining to any of the Collateral, provided such exercise is not
contrary to the interests of the Lenders and does not impair the Collateral and
(ii) may receive and retain any and all dividends, interest payments or other
distributions paid in respect of the Collateral.

5.3. Upon the
occurrence and during the continuation of an Event of Default, all rights of
Debtor, upon notice given by Collateral Agent, to exercise the voting power and
receive payments, which it would otherwise be entitled to pursuant to Section
5.2, shall cease and all such rights shall thereupon become vested in Collateral
Agent, which shall thereupon have the sole right to exercise such voting power
and receive such payments.

5.4 All
dividends, distributions, interest and other payments which are received by
Debtor contrary to the provisions of Section 5.3 shall be received in trust for
the benefit of Collateral Agent, shall be segregated from other funds of Debtor,
and shall be forthwith paid over to Collateral Agent as Collateral in the exact
form received with any necessary endorsement and/or appropriate stock powers
duly executed in blank, to be held by Collateral Agent as Collateral and as
further collateral security for the Obligations.

6. Further
Action By Debtor; Covenants and Warranties.

6.1 Collateral
Agent at all times shall have a perfected security interest in the Collateral.
Subject to the security interests described herein, Debtor has and will continue
to have full title to the Collateral free from any liens, leases, encumbrances,
judgments or other claims. Collateral Agent's security interest in the
Collateral constitutes and will continue to constitute a first, prior and
indefeasible security interest in favor of Collateral Agent. Debtor will do all
acts and things, and will execute and file all instruments (including, but not
limited to, security agreements, financing statements, continuation statements,
etc.) reasonably requested by Collateral Agent to establish, maintain and
continue the perfected security interest of Collateral Agent in the Collateral,
and will promptly on demand, pay all costs and expenses of filing and recording,
including the costs of any searches reasonably deemed necessary by Collateral
Agent from time to time to establish and determine the validity and the
continuing priority of the security interest of Collateral Agent, and also pay
all other claims and charges that, in the opinion of Collateral Agent, exercised
in good faith, are reasonably likely to materially prejudice, imperil or
otherwise affect the Collateral or Collateral Agent’s or Lenders’ security
interests therein.

6.2 Other
than in the ordinary course of business, and except for Collateral which is
substituted by assets of identical or greater value or which has become obsolete
or is of inconsequential in value, Debtor will not sell, transfer, assign or
pledge those items of Collateral (or allow any such items to be sold,
transferred, assigned or pledged), without the prior written consent of
Collateral Agent other than a transfer of the Collateral to a wholly-owned
subsidiary on prior notice to Collateral Agent, and provided the Collateral
remains subject to the security interest herein described. Although Proceeds of
Collateral are covered by this Agreement, this shall not be construed to mean
that Collateral Agent consents to any sale of the Collateral, except as provided
herein. Sales of Collateral in the ordinary course of business shall be free of
the security interest of Lenders and Collateral Agent and Lenders and Collateral
Agent shall promptly execute such documents (including without limitation
releases and termination statements) as may be required by Debtor to evidence or
effectuate the same.

6.3 Debtor
will, at all reasonable times and upon reasonable notice, allow Collateral Agent
or its representatives free and complete access to the Collateral and all of
Debtor's records which in any way relate to the Collateral, for such inspection
and examination as Collateral Agent reasonably deems necessary.

6.4 Debtor,
at its sole cost and expense, will protect and defend this Security Agreement,
all of the rights of Collateral Agent and Lenders hereunder, and the Collateral
against the claims and demands of all other persons.

6.5 Debtor
will promptly notify Collateral Agent of any levy, distraint or other seizure by
legal process or otherwise of any part of the Collateral, and of any threatened
or filed claims or proceedings that are reasonably likely to affect or impair
any of the rights of Collateral Agent under this Security Agreement in any
material respect.

6.6 Debtor,
at its own expense, will obtain and maintain in force insurance policies
covering losses or damage to those items of Collateral which constitute physical
personal property. The insurance policies to be obtained by Debtor shall be in
form and amounts reasonably acceptable to Collateral Agent. Debtor shall make
the Collateral Agent first a loss payee thereon to the extent of its interest in
the Collateral. Collateral Agent is hereby irrevocably (until the Obligations
are paid in full) appointed Debtor’ attorney-in-fact to endorse any check or
draft that may be payable to Debtor so that Collateral Agent may collect the
proceeds payable for any loss under such insurance. The proceeds of such
insurance (subject to the rights of senior secured parties), less any costs and
expenses incurred or paid by Collateral Agent in the collection thereof, shall
be applied either toward the cost of the repair or replacement of the items
damaged or destroyed, or on account of any sums secured hereby, whether or not
then due or payable.

6.7 Collateral
Agent may, at its option, and without any obligation to do so, pay, perform and
discharge any and all amounts, costs, expenses and liabilities herein agreed to
be paid or performed by Debtor. Upon
Debtor’s
failure to do
so, all amounts expended by Collateral Agent in so doing shall become part of
the Obligations secured hereby, and shall be immediately due and payable by
Debtor to Collateral Agent upon demand and shall
bear interest at the lesser of 15% per annum or the highest legal amount from
the dates of such expenditures until paid.

6.8 Upon the
request of Collateral Agent, Debtor will furnish to Collateral Agent within five
(5) business days thereafter, or to any proposed assignee of this Security
Agreement, a written statement in form reasonably satisfactory to Collateral
Agent, duly acknowledged, certifying the amount of the principal and interest
and any other sum then owing under the Obligations, whether to its knowledge any
claims, offsets or defenses exist against the Obligations or against this
Security Agreement, or any of the terms and provisions of any other agreement of
Debtor securing the Obligations. In connection with any assignment by Collateral
Agent of this Security Agreement, Debtor hereby agrees to cause the insurance
policies required hereby to be carried by Debtor, if any, to be endorsed in form
satisfactory to Collateral Agent or to such assignee, with loss payable clauses
in favor of such assignee, and to cause such endorsements to be delivered to
Collateral Agent within ten (10) calendar days after request therefor by
Collateral Agent.

6.9 Debtor
will, at its own expense, make, execute, endorse, acknowledge, file and/or
deliver to the Collateral Agent from time to time such vouchers, invoices,
schedules, confirmatory assignments, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, reports and other reasonable
assurances or instruments and take further steps relating to the Collateral and
other property or rights covered by the security interest hereby granted, as the
Collateral Agent may reasonably require to perfect its security interest
hereunder.

6.10 Debtor
represents and warrants that it is the true and lawful exclusive owner of the
Collateral, free and clear of any liens and encumbrances.

6.11 Debtor
hereby agrees not to divest itself of any right under the Collateral except as
permitted herein absent prior written approval of the Collateral Agent, except
to a subsidiary organized and located in the United States on prior notice to
Collateral Agent provided the Collateral remains subject to the security
interest herein described.

 

6.12 Debtor
shall cause each Subsidiary of Debtor not in existence on the date hereof to
execute and deliver to Collateral Agent promptly and in any event within 10 days
after the formation, acquisition or change in status thereof (A) a guaranty
guaranteeing the Obligations and (B) a security and pledge agreement
substantially in the form of this Agreement together with (x) certificates
evidencing all of the capital stock of any entity owned by such Subsidiary, (y)
undated stock powers executed in blank with signature guaranteed, and (z) such
opinion of counsel and such approving certificate of such Subsidiary as
Collateral Agent may reasonably request in respect of complying with any legend
on any such certificate or any other matter relating to such shares and (E) such
other agreements, instruments, approvals, legal opinions or other documents
reasonably requested by Collateral Agent in order to create, perfect, establish
the first priority of or otherwise protect any lien purported to be covered by
any such pledge and security agreement or otherwise to effect the intent that
all property and assets of such Subsidiary shall become Collateral for the
Obligations. For purposes of this Agreement, “Subsidiary” means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (A) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (B) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (C) in the case of a trust, estate, association, joint
venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
entity.

7. Power
of Attorney.

After the
occurrence and during the uncured continuation of an Event of Default as defined
in Section 9 below, Debtor hereby irrevocably constitutes and appoints the
Collateral Agent as the true and lawful attorney of Debtor, with full power of
substitution, in the place and stead of Debtor and in the name of Debtor or
otherwise, at any time or times, in the discretion of the Collateral Agent, to
take any action and to execute any instrument or document which the Collateral
Agent may deem necessary or advisable to accomplish the purposes of this
Agreement. This power of attorney is coupled with an interest and is irrevocable
until the Obligations are satisfied.

8. Performance
By The Collateral Agent.

If Debtor
fails to perform any material covenant, agreement, duty or obligation of Debtor
under this Agreement, the Collateral Agent may, after any applicable cure
period, at any time or times in its discretion, take action to effect
performance of such obligation. All reasonable expenses of the Collateral Agent
incurred in connection with the foregoing authorization shall be payable by
Debtor as provided in Paragraph 12.1 hereof. No discretionary right, remedy or
power granted to the Collateral Agent under any part of this Agreement shall be
deemed to impose any obligation whatsoever on the Collateral Agent with respect
thereto, such rights, remedies and powers being solely for the protection of the
Collateral Agent.

9. Event
of Default.

An event
of default ("Event of Default") shall be deemed to have occurred hereunder upon
the occurrence of any event of default as defined and described in this
Agreement, in the Notes, Subscription Agreement, and any other agreement to
which Debtor and a Lender are parties. Upon and after any Event of Default,
after the applicable cure period, if any, any or all of the Obligations shall
become immediately due and payable at the option of the Collateral Agent, for
the benefit of the Lenders, and the Collateral Agent may dispose of Collateral
as provided below. A default by Debtor of any of its material obligations
pursuant to this Agreement shall be an Event of Default hereunder and an event
of default as defined in the Notes, and Subscription Agreement.

10. Disposition
of Collateral.

Upon and
after any Event of Default which is then continuing,

10.1 The
Collateral Agent may exercise its rights with respect to each and every
component of the Collateral, without regard to the existence of any other
security or source of payment for the Obligations. In addition to other rights
and remedies provided for herein or otherwise available to it, the Collateral
Agent shall have all of the rights and remedies of a lender on default under the
Uniform Commercial Code then in effect in the State of New York.

10.2 If any
notice to Debtor of the sale or other disposition of Collateral is required by
then applicable law, five business (5) days prior written notice (which Debtor
agrees is reasonable notice within the meaning of Section 9.612(a) of the
Uniform Commercial Code) shall be given to Debtor of the time and place of any
sale of Collateral which Debtor hereby agrees may be by private sale. The rights
granted in this Section are in addition to any and all rights available to
Collateral Agent under the Uniform Commercial Code.

10.3 The
Collateral Agent is authorized, at any such sale, if the Collateral Agent deems
it advisable to do so, in order to comply with any applicable securities laws,
to restrict the prospective bidders or purchasers to persons who will represent
and agree, among other things, that they are purchasing the Collateral for their
own account for investment, and not with a view to the distribution or resale
thereof, or otherwise to restrict such sale in such other manner as the
Collateral Agent deems advisable to ensure such compliance. Sales made subject
to such restrictions shall be deemed to have been made in a commercially
reasonable manner.

10.4 All
proceeds received by the Collateral Agent for the benefit of the Lenders in
respect of any sale, collection or other enforcement or disposition of
Collateral, shall be applied (after deduction of any amounts payable to the
Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations pro
rata among the Lenders in proportion to their interests in the Obligations. Upon
payment in full of all Obligations, Debtor shall be entitled to the return of
all Collateral, including cash, which has not been used or applied toward the
payment of Obligations or used or applied to any and all costs or expenses of
the Collateral Agent incurred in connection with the liquidation of the
Collateral (unless another person is legally entitled thereto). Any assignment
of Collateral by the Collateral Agent to Debtor shall be without representation
or warranty of any nature whatsoever and wholly without recourse. To the extent
allowed by law, each Lender may purchase the Collateral and pay for such
purchase by offsetting up to such Lender’s pro rata portion of the purchase
price with sums owed to such Lender by Debtor arising under the Obligations or
any other source.

11. Waiver
of Automatic Stay. Debtor
acknowledges and agrees that should a proceeding under any bankruptcy or
insolvency law be commenced by or against Debtor, or if any of the Collateral
should become the subject of any bankruptcy or insolvency proceeding, then the
Collateral Agent should be entitled to, among other relief to which the
Collateral Agent or Lenders may be entitled under the Note, Subscription
Agreement and any other agreement to which the Debtor, Lenders or Collateral
Agent are parties, (collectively "Loan Documents") and/or applicable law, an
order from the court granting immediate relief from the automatic stay pursuant
to 11 U.S.C. Section 362 to permit the Collateral Agent to exercise all of its
rights and remedies pursuant to the Loan Documents and/or applicable law. Debtor
EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
362. FURTHERMORE, Debtor EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11
U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE
OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL
AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
APPLICABLE LAW. Debtor hereby consents to any motion for relief from stay which
may be filed by the Collateral Agent in any bankruptcy or insolvency proceeding
initiated by or against Debtor, and further agrees not to file any opposition to
any motion for relief from stay filed by the Collateral Agent. Debtor
represents, acknowledges and agrees that this provision is a specific and
material aspect of this Agreement, and that the Collateral Agent would not agree
to the terms of this Agreement if this waiver were not a part of this Agreement.
Debtor further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Collateral Agent
nor any person acting on behalf of the Collateral Agent has made any
representations to induce this waiver, that Debtor has been represented (or has
had the opportunity to be represented) in the signing of this Agreement and in
the making of this waiver by independent legal counsel selected by Debtor and
that Debtor has had the opportunity to discuss this waiver with counsel. Debtor
further agrees that any bankruptcy or insolvency proceeding initiated by Debtor
will only be brought in the Federal Court within the Southern District of New
York.

12. Miscellaneous.

12.1 Expenses. Debtor
shall pay to the Collateral Agent, on demand, the amount of any and all
reasonable expenses, including, without limitation, attorneys' fees, legal
expenses and brokers' fees, which the Collateral Agent may incur in connection
with (a) sale, collection or other enforcement or disposition of Collateral; (b)
exercise or enforcement of any the rights, remedies or powers of the Collateral
Agent hereunder or with respect to any or all of the Obligations upon breach or
threatened breach; or (c) failure by Debtor to perform and observe any
agreements of Debtor contained herein which are performed by the Collateral
Agent.

12.2 Waivers,
Amendment and Remedies. No
course of dealing by the Collateral Agent and no failure by the Collateral Agent
to exercise, or delay by the Collateral Agent in exercising, any right, remedy
or power hereunder shall operate as a waiver thereof, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any other right, remedy or power of the Collateral Agent. No
amendment, modification or waiver of any provision of this Agreement and no
consent to any departure by Debtor therefrom, shall, in any event, be effective
unless contained in a writing signed by the Collateral Agent, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. The rights, remedies and powers of the
Collateral Agent, not only hereunder, but also under any instruments and
agreements evidencing or securing the Obligations and under applicable law are
cumulative, and may be exercised by the Collateral Agent from time to time in
such order as the Collateral Agent may elect.

12.3 Notices. All
notices or other communications given or made hereunder shall be in writing and
shall be personally delivered or deemed delivered the first business day after
being faxed (provided that a copy is delivered by first class mail) to the party
to receive the same at its address set forth below or to such other address as
either party shall hereafter give to the other by notice duly made under this
Section:

	 	To Debtor: 	 	Hybrid Fuel Systems, Inc.
	 	 	 	12409 Telecom Drive
	 	 	 	Tampa,
      FL 33637
	 	 	 	Attn:
      Mark Clancy, CEO
	 	 	 	
      Fax:
      (813) 979-9224

	 	 	 	 
	 	
      With
      a copy by telecopier only
      to: 
	 	Sichenzia, Ross, Friedman &
      Ference LLP 
	 	 	 	1065
      Avenue of the Americas
	 	 		New
      York, NY 10018
	 	 	 	Attn:
      Darrin M. Ocasio, Esq.
	 	 	 	Fax: (212) 930-9725
	 	 	 	 
	 	To Lenders: 	 	To the addresses and telecopier numbers set
      forth on Schedule A
	 	 	 	 
	 	To the Collateral Agent:	 	Barbara R. Mittman 
	 	 	 	Grushko & Mittman, P.C.
	 	 	 	551 Fifth Avenue, Suite 1601
	 	 	 	New York, New York 10176
	 	 	 	Fax: (212) 697-3575

 

Any party
may change its address by written notice in accordance with this
paragraph.

12.4 Term;
Binding Effect. This
Agreement shall (a) remain in full force and effect until payment and
satisfaction in full of all of the Obligations; (b) be binding upon Debtor, and
its successors and permitted assigns; and (c) inure to the benefit of the
Collateral Agent, for the benefit of the Lenders and their respective successors
and assigns. All the rights and benefits granted by Debtor to the Collateral
Agent and Lenders in the Loan Documents and other agreements and documents
delivered in connection therewith are deemed granted to both the Collateral
Agent and Lenders.

12.5 Captions. The
captions of Paragraphs, Articles and Sections in this Agreement have been
included for convenience of reference only, and shall not define or limit the
provisions hereof and have no legal or other significance
whatsoever.

12.6 Governing
Law; Venue; Severability. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without regard to conflicts
of laws principles
that
would result in the application of the substantive laws of another
jurisdiction, except
to the extent that the perfection of the security interest granted hereby in
respect of any item of Collateral may be governed by the law of another
jurisdiction. Any legal action or proceeding against Debtor with respect to this
Agreement may be brought in the courts in the State of
New York or of the United
States for the Southern District of New York, and, by execution and delivery of
this Agreement, Debtor hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Debtor hereby irrevocably waives any objection which they may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
aforesaid courts and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum. If any provision of this
Agreement, or the application thereof to any person or circumstance, is held
invalid, such invalidity shall not affect any other provisions which can be
given effect without the invalid provision or application, and to this end the
provisions hereof shall be severable and the remaining, valid provisions shall
remain of full force and effect.

12.7 Entire
Agreement. This
Agreement contains the entire agreement of the parties and supersedes all other
agreements and understandings, oral or written, with respect to the matters
contained herein.

12.8 Counterparts/Execution. This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.

[THIS
SPACE INTENTIONALLY LEFT BLANK]

IN
WITNESS WHEREOF, the
undersigned have executed and delivered this Security Agreement, as of the date
first written above.

 

	"DEBTOR" 	"THE COLLATERAL
      AGENT" 
	HYBRID FUEL SYSTEMS, INC. 	BARBARA R. MITTMAN 
	a Georgia corporation 	 
	 	 
	By: /s/
      Mark Clancy_______________________ 	/s/ Barbara R. Mittman__________________ 
	 	 
	Its: Chief
      Executive Officer_________________ 	 
	 	 
	
       APPROVED BY
      “LENDERS”:

	 	 
	______________________________________ 	_______________________________________ 
	ALPHA CAPITAL
    AKTIENGESELLSCHAFT 	WHALEHAVEN
      CAPITAL FUND LIMITED 
	 	 
	______________________________________ 	 
	ELLIS INTERNATIONAL LTD. 	 

 

This
Security Agreement may be signed by facsimile signature
and

delivered
by confirmed facsimile transmission.

SCHEDULE
A TO SECURITY AGREEMENT

 

	LENDER
	
      INITIAL
      CLOSING PURCHASE PRICE
	
      SECOND
      CLOSING PURCHASE PRICE

	 	 	 
	
      ALPHA
      CAPITAL AKTIENGESELLSCHAFT

      Pradafant
      7

      9490
      Furstentums

      Vaduz,
      Lichtenstein

      Fax:
      011-42-32323196
	
      $250,000.00
	
      $250,000.00

	
      WHALEHAVEN
      CAPITAL FUND LIMITED 

      3rd
      Floor, 14 Par-Laville Road

      Hamilton,
      Bermuda HM08

      Fax:
      (441) 292-1373
	
      $300,000.00
	
      $300,000.00

	
      ELLIS
      INTERNATIONAL LTD.

      53rd
      Street Urbanizacion Obarrio

      Swiss
      Tower, 16th
      Floor, Panama

      Republic
      of Panama

      Fax:
      (516) 887-8990
	
      $50,000.00
	
      $50,000.00

	
      TOTAL
	
      $600,000.00
	
      $600,000.00

 

ANNEX
I

 

TO

 

SECURITY
AGREEMENT

 

PLEDGE
AMENDMENT

 

This
Pledge Amendment, dated _________ __ 200_, is delivered pursuant to Section
3.2(B)(i) of the Security Agreement referred to below. The undersigned hereby
agrees that this Pledge Amendment may be attached to the Security Agreement,
dated March 31, 2005, as it may heretofore have been or hereafter may be
amended, restated, supplemented or otherwise modified from time to time and that
the shares of the subsidiaries listed on this Pledge Amendment shall be hereby
pledged and assigned to Collateral Agent and become part of the Collateral
referred to in such Security Agreement and shall secure all of the Obligations
referred to in such Security Agreement.

 

	
       

      Name
      of Subsidiary
	
       

      Number
      of
      Shares
	
       

      Class
	
       

      Certificate
      Number(s)

	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

HYBRID
FUEL SYSTEMS, INC.

By: __________________

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00082-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00082-of-00352.parquet"}]]