Document:

EXHIBIT 10.7

                     IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

                                 April 11, 2006

Atlas Stock Transfer Corp.
5899 South State Street
Salt Lake City, Utah 84107

Attention: Pamela Gray

      RE: SWISS MEDICA, INC.

Ladies and Gentlemen:

      Reference is made to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement") of even date herewith by and between Swiss
Medica, Inc., a Delaware corporation (the "Company"), and the Buyers set forth
on Schedule I attached thereto (collectively the "Buyers") and that certain
Pledge and Escrow Agreement (the "Pledge Agreement") of even date herewith among
the Company and the Buyers. Pursuant to the Securities Purchase Agreement, the
Company shall sell to the Buyers, an the Buyers shall purchase from the Company,
convertible debentures (collectively, the "Debentures") in the aggregate
principal amount of Two Million Dollars ($2,000,000), plus accrued interest,
which are convertible into shares of the Company's common stock, par value $.001
per share (the "Common Stock"), at the Buyers discretion. The Company has also
issued to the Buyer warrants to purchase up to 2,000,000 shares of Common Stock,
at the Buyer's discretion (the "Warrant"). These instructions relate to the
following stock or proposed stock issuances or transfers:

      1.    a minimum of 60,000,000, or as otherwise indicated in the Investor's
            Registration Rights Agreement, Shares of Common Stock to be issued
            to the Buyers upon conversion of the Debentures ("Conversion
            Shares") plus the shares of Common Stock to be issued to the Buyers
            upon conversion of accrued interest and liquidated damages into
            Common Stock (the "Interest Shares").

      2.    Up to 2,000,000 shares of Common Stock to be issued to the Buyers
            upon exercise of the Warrant (the "Warrant Shares").

                                       8
<PAGE>

      3.    The transfer of up to 27,586,207 shares of Common Stock (the
            "Reserved Shares") that are being reserved by the Atlas Stock
            Transfer Corp. (the "Transfer Agent") as outlined herein and
            pursuant to the Pledge Agreement.

      This letter shall serve as our irrevocable authorization and direction
to the Transfer Agent to do the following:

      1. Conversion Shares and Warrant Shares.

            a.    Instructions Applicable to Transfer Agent. With respect to the
                  Conversion Shares, Warrant Shares and the Interest Shares, the
                  Transfer Agent shall issue the Conversion Shares, Warrant
                  Shares and the Interest Shares to the Buyers from time to time
                  upon delivery to the Transfer Agent of a properly completed
                  and duly executed Conversion Notice (the "Conversion Notice")
                  in the form attached as Exhibit A to the Debentures, or a
                  properly completed and duly executed Exercise Notice (the
                  "Exercise Notice") in the form attached as Exhibit A to the
                  Warrant, delivered to the Transfer Agent by the David
                  Gonzalez, Esq., counsel to the Buyer, on behalf of the
                  Company. Upon receipt of a Conversion Notice or an Exercise
                  Notice, the Transfer Agent shall within three (3) Trading Days
                  thereafter (i) issue and surrender to a common carrier for
                  overnight delivery to the address as specified in the
                  Conversion Notice or the Exercise Notice, a certificate,
                  registered in the name of the Buyer or its designees, for the
                  number of shares of Common Stock to which the Buyer shall be
                  entitled as set forth in the Conversion Notice or Exercise
                  Notice or (ii) provided the Transfer Agent is participating in
                  The Depository Trust Company ("DTC") Fast Automated Securities
                  Transfer Program, upon the request of the Buyers, credit such
                  aggregate number of shares of Common Stock to which the Buyers
                  shall be entitled to the Buyer's or their designees' balance
                  account with DTC through its Deposit Withdrawal At Custodian
                  ("DWAC") system provided the Buyer causes its bank or broker
                  to initiate the DWAC transaction. For purposes hereof "Trading
                  Day" shall mean any day on which the Nasdaq Market is open for
                  customary trading.

            b.    The Company hereby confirms to the Transfer Agent and the
                  Buyer that certificates representing the Conversion Shares and
                  the Warrant Shares shall not bear any legend restricting
                  transfer and should not be subject to any stop-transfer
                  restrictions and shall otherwise be freely transferable on the
                  books and records of the Company; provided that counsel to the
                  Company delivers (i) the Notice of Effectiveness set forth in
                  Exhibit I attached hereto and (ii) an opinion of counsel in
                  the form set forth in Exhibit II attached hereto. On the other
                  had if the Conversion Shares, Warrant Shares and the Interest
                  Shares are not registered for sale under the Securities Act of
                  1933, as amended, then the certificates for the Conversion
                  Shares, Warrant Shares and Interest Shares shall bear the
                  following legend:

                                       2
<PAGE>

                  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
                  APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
                  ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
                  TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
                  REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
                  ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
                  OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
                  THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
                  OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
                  RULE 144 UNDER SAID ACT."

            c.    In the event that counsel to the Company fails or refuses to
                  render an opinion as required to issue the Conversion Shares
                  or the Warrant Shares in accordance with the preceding
                  paragraph (either with or without restrictive legends, as
                  applicable), then the Company irrevocably and expressly
                  authorizes counsel to the Buyer to render such opinion. The
                  Transfer Agent shall accept and be entitled to rely on such
                  opinion for the purposes of issuing the Conversion Shares.

            d.    Instructions Applicable to David Gonzalez. Upon David
                  Gonzalez's receipt of a properly completed Conversion Notice
                  or Exercise Notice and the Aggregate Exercise Price (as
                  defined in the Warrant), David Gonzalez shall, within one (1)
                  Trading Day thereafter, send to the Transfer Agent and the
                  Company the Conversion Notice or Exercise Notice as the case
                  may be, which shall constitute an irrevocable instruction to
                  the Transfer Agent to process such Conversion Notice or
                  Exercise Notice in accordance with the terms of these
                  instructions.

      2. Reserved Shares.

            a.    Instructions Applicable to Transfer Agent. With respect to the
                  Reserved Shares, upon an event of default as set forth in the
                  Pledge Agreement, the Transfer Agent shall issue the Escrowed
                  Shares to the Buyers all of the Escrowed Shares, provided that
                  in the event that such issuance of Escrowed Shares to the
                  Buyers shall would cause the Buyers, together with its
                  affiliates, to beneficially own in excess of 9.99% of the
                  outstanding capital of the Company, upon delivery to the
                  Transfer Agent of a properly completed and duly executed
                  Default Notice (the "Default Notice") in the form attached as
                  Exhibit A to the Pledge Agreement, delivered to the Transfer
                  Agent by the David Gonzalez, Esq., counsel to the Buyer. In
                  the event that such an issuance to the Buyer shall cause the
                  Buyer to own in excess of 9.99% of the outstanding capital of
                  the Company the Buyer shall the right to deliver to the
                  Transfer Agent a Default Notice every time the Buyer's
                  holdings of Escrowed Shares is under 9.99% of the outstanding
                  capital of the Company until such time the Buyers has
                  foreclosed on all Escrowed Shares. Upon receipt of a Default
                  Notice the Transfer Agent shall within three (3) Trading Days
                  thereafter (i) issue and surrender to a common carrier for
                  overnight delivery to the address as specified in the Default
                  Notice, a certificate, registered in the name of the Buyer or
                  its designees, for the number of Escrowed Shares to which the
                  Buyer shall be entitled as set forth in the Default Notice or
                  (ii) provided the Transfer Agent is participating in The
                  Depository Trust Company ("DTC") Fast Automated Securities
                  Transfer Program, upon the request of the Buyers, credit such
                  aggregate number of shares of Common Stock to which the Buyers
                  shall be entitled to the Buyer's or their designees' balance
                  account with DTC through its Deposit Withdrawal At Custodian
                  ("DWAC") system provided the Buyer causes its bank or broker
                  to initiate the DWAC transaction. For purposes hereof "Trading
                  Day" shall mean any day on which the Nasdaq Market is open for
                  customary trading.

                                       3
<PAGE>

            b.    Instructions Applicable to David Gonzalez. Upon David
                  Gonzalez's receipt of a properly completed Default Notice,
                  David Gonzalez shall, within one (1) Trading Day thereafter,
                  send to the Transfer Agent and the Company the Default Notice
                  which shall constitute an irrevocable instruction to the
                  Transfer Agent to process such Default Notice in accordance
                  with the terms of these instructions.

            c.    In the event that counsel to the Company fails or refuses to
                  render an opinion as may be required by the Transfer Agent to
                  affect a transfer of the Reserved Shares (either with or
                  without restrictive legends, as applicable), then the Company
                  irrevocably and expressly authorizes counsel to the Buyers to
                  render such opinion. The Transfer Agent shall accept and be
                  entitled to rely on such opinion for the purpose of
                  transferring the Reserved Shares.

      3. All Shares.

            a.    The Transfer Agent shall reserve for issuance to the Buyers a
                  minimum of 60,000,000, or as otherwise indicated in the
                  Investor's Registration Rights Agreement, Conversion Shares,
                  2,000,000 Warrant Shares and 27,297,260 Reserved Shares. All
                  such shares shall remain in reserve with the Transfer Agent
                  until the Buyers provides the Transfer Agent instructions that
                  the shares or any part of them shall be taken out of reserve
                  and shall no longer be subject to the terms of these
                  instructions.

            b.    The Company hereby irrevocably appoints David Gonzalez t as a
                  duly authorized agent of the Company for the purposes of
                  authorizing the Transfer Agent to process issuances and
                  transfers specifically contemplated herein.

            c.    The Transfer Agent shall rely exclusively on the Conversion
                  Notice, the Escrow Notice, or the Exercise Notice and shall
                  have no liability for relying on such instructions. Any
                  Conversion Notice, Default Notice, or Exercise Notice
                  delivered hereunder shall constitute an irrevocable
                  instruction to the Transfer Agent to process such notice or
                  notices in accordance with the terms thereof. Such notice or
                  notices may be transmitted to the Transfer Agent by facsimile
                  or any commercially reasonable method.

                                       4
<PAGE>

            d.    The Company hereby confirms to the Transfer Agent and the
                  Buyers that no instructions other than as contemplated herein
                  will be given to Transfer Agent by the Company with respect to
                  the matters referenced herein. The Company hereby authorizes
                  the Transfer Agent, and the Transfer Agent shall be obligated,
                  to disregard any contrary instructions received by or on
                  behalf of the Company.

      Certain Notice Regarding David Gonzalez. The Company and the Transfer
Agent hereby acknowledge that David Gonzalez is general counsel to the Buyers, a
partner of the general partner of the Buyers and counsel to the Buyers in
connection with the transactions contemplated and referred herein. The Company
and the Transfer Agent agree that in the event of any dispute arising in
connection with this Agreement or otherwise in connection with any transaction
or agreement contemplated and referred herein, David Gonzalez shall be permitted
to continue to represent the Buyers and neither the Company nor the Transfer
Agent will seek to disqualify such counsel.

      The Company hereby agrees that it shall not replace the Transfer Agent as
the Company's transfer agent without the prior written consent of the Buyers.

      Any attempt by Transfer Agent to resign as the Company's transfer agent
hereunder shall not be effective until such time as the Company provides to the
Transfer Agent written notice that a suitable replacement has agreed to serve as
transfer agent and to be bound by the terms and conditions of these Irrevocable
Transfer Agent Instructions.

      The Company and the Transfer Agent hereby acknowledge and confirm that
complying with the terms of this Agreement does not and shall not prohibit the
Transfer Agent from satisfying any and all fiduciary responsibilities and duties
it may owe to the Company.

      The Company and the Transfer Agent acknowledge that the Buyers is relying
on the representations and covenants made by the Company and the Transfer Agent
hereunder and are a material inducement to the Buyers purchasing convertible
debentures under the Securities Purchase Agreement. The Company and the Transfer
Agent further acknowledge that without such representations and covenants of the
Company and the Transfer Agent made hereunder, the Buyers would not purchase the
Debentures.

      Each party hereto specifically acknowledges and agrees that in the event
of a breach or threatened breach by a party hereto of any provision hereof, the
Buyers will be irreparably damaged and that damages at law would be an
inadequate remedy if these Irrevocable Transfer Agent Instructions were not
specifically enforced. Therefore, in the event of a breach or threatened breach
by a party hereto, including, without limitation, the attempted termination of
the agency relationship created by this instrument, the Buyers shall be
entitled, in addition to all other rights or remedies, to an injunction
restraining such breach, without being required to show any actual damage or to
post any bond or other security, and/or to a decree for specific performance of
the provisions of these Irrevocable Transfer Agent Instructions.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       5
<PAGE>

      IN WITNESS WHEREOF, the parties have caused this letter agreement
regarding Irrevocable Transfer Agent Instructions to be duly executed and
delivered as of the date first written above.

                                          COMPANY:

                                          SWISS MEDICA, INC.

                                          By: /s/ Raghunath Kilambi
                                             ---------------------------
                                          Name: Raghunath Kilambi
                                          Title: Chief Executive Officer

                                          /s/ David Gonzalez
                                          ------------------------------
                                          David Gonzalez, Esq.

Atlas Stock Transfer Corp.

By: /s/ Jerry R. Rowley
   ------------------------------
Name: Jerry R. Rowley
     ----------------------------
Title: President
      ---------------------------

                                       6
<PAGE>

                                   SCHEDULE I
                                   ----------

                               SCHEDULE OF BUYERS
                               ------------------

<TABLE>
<CAPTION>
                                                                  Address/Facsimile
Name                               Signature                      Number of Buyers
--------------------------------   ---------------------------    -----------------------------
<S>                                <C>                            <C>

Montgomery Equity Partners, Ltd.   By: Yorkville Advisors, LLC    2999 Northeast 191 Street -
                                                                  Penthouse II
                                   Its: General Partner           Aventura, FL 33180
                                                                  Facsimile:     (305) 692-1762

                                   By: /s/ Robert D. Press
                                      -----------------------
                                   Name: Robert D. Press
                                   Its:  Portfolio Manager
</TABLE>

                                   SCHEDULE I-1
<PAGE>

                                    EXHIBIT I
                                    ---------

                   TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
                   ------------------------------------------

                         FORM OF NOTICE OF EFFECTIVENESS
                         -------------------------------
                            OF REGISTRATION STATEMENT
                            -------------------------

_________, 2006

_________

Attention:

RE: SWISS MEDICA, INC.

Ladies and Gentlemen:

      We are counsel to Swiss Medica, Inc., (the "Company"), and have
represented the Company in connection with that certain Securities Purchase
Agreement, dated as of March __, 2006 (the "Securities Purchase Agreement"),
entered into by and among the Company and the Buyers set forth on Schedule I
attached thereto (collectively the "Buyers") pursuant to which the Company has
agreed to sell to the Buyers up to $2,000,000 of secured convertible debentures,
which shall be convertible into shares (the "Conversion Shares") of the
Company's common stock, par value $0.001 per share (the "Common Stock"), in
accordance with the terms of the Securities Purchase Agreement. Pursuant to the
Securities Purchase Agreement, the Company also has entered into a Registration
Rights Agreement, dated as of March ___, 2005, with the Buyers (the "Investor
Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Conversion Shares under the Securities Act of
1933, as amended (the "1933 Act"). In connection with the Company's obligations
under the Securities Purchase Agreement and the Registration Rights Agreement,
on _______, 2006, the Company filed a Registration Statement (File No.
___-_________) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the sale of the Conversion Shares.

      In connection with the foregoing, we advise the Transfer Agent that a
member of the SEC's staff has advised us by telephone that the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at
____ P.M. on __________, 2006 and we have no knowledge, after telephonic inquiry
of a member of the SEC's staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and the Conversion Shares are available for sale under
the 1933 Act pursuant to the Registration Statement.

                                   EXHIBIT I-1
<PAGE>

      The Buyers has confirmed it shall comply with all securities laws and
regulations applicable to it including applicable prospectus delivery
requirements upon sale of the Conversion Shares.

                                    Very truly yours,

                                    By:________________________________

                                   EXHIBIT I-2
<PAGE>

                                   EXHIBIT II
                                   ----------

                   TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
                   ------------------------------------------

                                 FORM OF OPINION
                                 ---------------

________________ 2005

VIA FACSIMILE AND REGULAR MAIL
------------------------------

________

Attention:

      RE: SWISS MEDICA, INC.

Ladies and Gentlemen:

      We have acted as special counsel to Swiss Medica, Inc. (the "Company"), in
connection with the registration of ___________shares (the "Shares") of its
common stock with the Securities and Exchange Commission (the "SEC"). We have
not acted as your counsel. This opinion is given at the request and with the
consent of the Company.

      In rendering this opinion we have relied on the accuracy of the Company's
Registration Statement on Form SB-2, as amended (the "Registration Statement"),
filed by the Company with the SEC on _________ ___, 2006. The Company filed the
Registration Statement on behalf of certain selling stockholders (the "Selling
Stockholders"). This opinion relates solely to the Selling Shareholders listed
on Exhibit "A" hereto and number of Shares set forth opposite such Selling
Stockholders' names. The SEC declared the Registration Statement effective on
__________ ___, 2006.

      We understand that the Selling Stockholders acquired the Shares in a
private offering exempt from registration under the Securities Act of 1933, as
amended. Information regarding the Shares to be sold by the Selling Shareholders
is contained under the heading "Selling Stockholders" in the Registration
Statement, which information is incorporated herein by reference. This opinion
does not relate to the issuance of the Shares to the Selling Stockholders. The
opinions set forth herein relate solely to the sale or transfer by the Selling
Stockholders pursuant to the Registration Statement under the Federal laws of
the United States of America. We do not express any opinion concerning any law
of any state or other jurisdiction.

      In rendering this opinion we have relied upon the accuracy of the
foregoing statements.

                                   EXHIBIT II
<PAGE>

      Based on the foregoing, it is our opinion that the Shares have been
registered with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and that ________ may remove the restrictive legends
contained on the Shares. This opinion relates solely to the number of Shares set
forth opposite the Selling Stockholders listed on Exhibit "A" hereto.

      This opinion is furnished to Transfer Agent specifically in connection
with the sale or transfer of the Shares, and solely for your information and
benefit. This letter may not be relied upon by Transfer Agent in any other
connection, and it may not be relied upon by any other person or entity for any
purpose without our prior written consent. This opinion may not be assigned,
quoted or used without our prior written consent. The opinions set forth herein
are rendered as of the date hereof and we will not supplement this opinion with
respect to changes in the law or factual matters subsequent to the date hereof.

Very truly yours,

                                  EXHIBIT II-2
<PAGE>

                                    EXHIBIT A
                                    ---------

                         (LIST OF SELLING STOCKHOLDERS)
                         ------------------------------

Name:                                                        No. of Shares:
---------------------------------------------------------    -----------------

                                    EXHIBIT AUnassociated Document

    Exhibit
      4.1

     

    Dated:
      April 10, 2006

     

    NEITHER
      THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE 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.

     

    
      	No. CCP-1	 	
              $750,000

            

    

     

    ASTRIS
      ENERGI, INC.

     

    Secured
      Convertible Debenture

     

    

     

    Due
      April 9, 2009

     

    This
      Secured Convertible Debenture (the “Debenture”)
      is
      issued by ASTRIS
      ENERGI, INC., a
      corporation organized under the laws of the province of Ontario, Canada (the
      “Obligor”),
      to
CORNELL
      CAPITAL PARTNERS, LP
      (the
“Holder”),
      pursuant to that certain Securities Purchase Agreement (the “Securities
      Purchase Agreement”)
      of
      even date herewith. 

     

    FOR
      VALUE RECEIVED,
      the
      Obligor hereby promises to pay to the Holder or its successors and assigns
      the
      principal sum of Seven Hundred Fifty Thousand Dollars ($750,000) together with
      accrued but unpaid interest on or before April 9, 2009 (the “Maturity
      Date”)
      in
      accordance with the following terms:

     

    Interest.
      Interest shall accrue on the outstanding principal balance hereof at an annual
      rate equal to ten percent (10%). Interest shall be calculated on the basis
      of a
      365-day year and the actual number of days elapsed, to the extent permitted
      by
      applicable law. Interest hereunder will be paid to the Holder or its assignee
      (as defined in Section
      5)
      in
      whose name this Debenture is registered on the records of the Obligor regarding
      registration and transfers of Debentures (the “Debenture
      Register”)
      and
      shall be paid in cash or in Common Stock at the Conversion Price in effect
      at
      the time payment is made, at the option of the Obligor.

     

    Right
      of Redemption.
      The
      Obligor at its option shall have the right, with three (3) business days advance
      written notice (the “Redemption
      Notice”),
      to
      redeem a portion or all amounts outstanding under this Debenture prior to the
      Maturity Date by paying an amount (the “Redemption
      Amount”)
      equal
      to (a) if Closing Bid Price of the of the Obligor’s Common Stock, as reported by
      Bloomberg, LP, is less than the Fixed Conversion Price at the time of the
      Redemption Notice, the Obligor shall pay an amount equal to the principal amount
      being redeemed plus a redemption premium (“Redemption
      Premium”)
      equal
      to twenty percent (20%) of the principal amount being redeemed, and accrued
      interest, and (b) if the Closing Bid Price of the Obligor’s Common Stock at the
      time of the Redemption Notice is above the Fixed Conversion Price (hereinafter
      defined), the Obligor shall pay an amount equal to the principal amount being
      redeemed plus an amount in cash equal to the product of the principal amount
      being redeemed plus any interest due therein divided by the Conversion Price
      then in effect, and multiplied by the highest closing price of the stock from
      date of the Redemption Notice through the date that such redemption is made.
      The
      Obligor shall deliver to the Holder the Redemption Amount on the third
      (3rd)
      business day after the Redemption Notice. 

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    Notwithstanding
      the foregoing in the event that the Obligor has elected to redeem a portion
      of
      the outstanding principal amount and accrued interest under this Debenture
      the
      Holder shall be permitted to convert all or any portion of this Debenture during
      such three business day period. 

     

    Security
      Agreements.
      This
      Debenture is secured by a Share Escrow Agreement (the “Share
      Escrow Agreement”)
      of
      even date herewith among the Obligor, the Holder, and the Escrow Agent, a
      Security Agreement (the “Security
      Agreement”)
      of
      even date herewith between the Obligor and the Holder, and a Subsidiary Security
      Agreement (the “Subsidiary Security
      Agreement”)
      of
      even date herewith between 206254 Ontario, Inc. and the Holder.

     

    This
      Debenture is subject to the following additional provisions:

     

    Section
      1. 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.

     

    Section
      2. Events
      of Default.

     

    (a) An
      “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):

     

    (i) Any
      default in the payment of the principal of, interest on or other charges in
      respect of this Debenture, 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 is not cured within 5 Trading
      Days;

     

    (ii) The
      Obligor shall fail to observe or perform any other material covenant, agreement
      or warranty contained in, or otherwise commit any breach or default of any
      provision of this Debenture (except as may be covered by Section
      2(a)(i)
      hereof)
      or any Transaction Document (as defined in Section
      5)
      which
      is not cured with in the time prescribed;

     

    (iii) The
      Obligor or any subsidiary of the Obligor shall commence a proceeding, or there
      shall be commenced against the Obligor or any subsidiary of the Obligor under
      any applicable bankruptcy or insolvency laws as now or hereafter in effect
      or
      any successor thereto, or the Obligor or any subsidiary of the Obligor 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 Obligor or
      any
      subsidiary of the Obligor or there is commenced against the Obligor or any
      subsidiary of the Obligor any such bankruptcy, insolvency or other proceeding
      which remains undismissed for a period of 61 days; or the Obligor or any
      subsidiary of the Obligor is adjudicated insolvent or bankrupt; or any order
      of
      relief or other order approving any such case or proceeding is entered; or
      the
      Obligor or any subsidiary of the Obligor suffers any appointment of any
      custodian, private or court appointed receiver or the like for it or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of sixty one (61) days; or the Obligor or any subsidiary of the Obligor
      makes a general assignment for the benefit of creditors; or the Obligor or
      any
      subsidiary of the Obligor shall fail to pay, or shall state that it is unable
      to
      pay, or shall be unable to pay, its debts generally as they become due; or
      the
      Obligor or any subsidiary of the Obligor shall call a meeting of its creditors
      with a view to arranging a composition, adjustment or restructuring of its
      debts; or the Obligor or any subsidiary of the Obligor shall by any act or
      failure to act expressly indicate its consent to, approval of or acquiescence
      in
      any of the foregoing; or any corporate or other action is taken by the Obligor
      or any subsidiary of the Obligor for the purpose of effecting any of the
      foregoing;

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (iv) The
      Obligor or any subsidiary of the Obligor shall default in any of its obligations
      under any other debenture or 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 Obligor or any subsidiary of the Obligor in an amount
      exceeding $100,000, 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;

     

    (v) The
      Common Stock shall cease to be quoted for trading or listed for trading on
      either the Nasdaq OTC Bulletin Board (“OTC”),
      Nasdaq Capital Market, New York Stock Exchange, American Stock Exchange or
      the
      Nasdaq National Market (each, a “Subsequent
      Market”)
      and
      shall not again be quoted or listed for trading thereon within five (5) Trading
      Days of such delisting;

     

    (vi) The
      Obligor or any subsidiary of the Obligor shall be a party to any Change of
      Control Transaction (as defined in Section
      5);
      

     

    (vii) The
      Obligor shall fail to file the Underlying Shares Registration Statement (as
      defined in Section
      5)
      with
      the Commission (as defined in Section
      5),
      or the
      Underlying Shares Registration Statement shall not have been declared effective
      by the Commission, in each case within the time periods set forth in the
      Investor Registration Rights Agreement (“Registration
      Rights Agreement”)
      of
      even date herewith between the Obligor and the Holder; provided, however, that
      it shall not be an Event of Default if the Shares Registration Statement shall
      not have been declared effective by the Commission, within the time periods
      set
      forth in the Investor Registration Rights Agreement solely as a result of the
      Commission raising an issue with respect to the Holder or with respect to the
      structure of the transaction contemplated by the Transaction Documents.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (viii) If
      the
      effectiveness of the Underlying Shares Registration Statement lapses for any
      reason or the Holder shall not be permitted to resell the shares of Common
      Stock
      underlying this Debenture under the Underlying Shares Registration Statement,
      in
      either case, for more than ten (10) consecutive Trading Days or an aggregate
      of
      twenty (20) Trading Days (which need not be consecutive Trading
      Days);

     

    (ix) The
      Obligor shall fail for any reason to deliver Common Stock certificates to a
      Holder prior to the seventh (7th)
      Trading
      Day after a Conversion Date or the Obligor 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 this Debenture in accordance with the
      terms hereof; 

     

    (x) The
      Obligor shall fail for any reason to deliver the payment in cash pursuant to
      a
      Buy-In (as defined herein) within three (3) days after notice is claimed
      delivered hereunder; 

     

    (b) During
      the time that any portion of this Debenture is outstanding, if any Event of
      Default has occurred, 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,
      provided
      however,
      the
      Holder may request (but shall have no obligation to request) payment of such
      amounts in Common Stock of the Obligor. In addition to any other remedies,
      the
      Holder shall have the right (but not the obligation) to convert this Debenture
      at any time (x) after an Event of Default or (y) on the Maturity Date at the
      Conversion Price then in-effect. The Holder need not provide and the Obligor
      hereby waives any presentment, demand, protest or other notice of any kind,
      and
      the Holder may immediately 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. No such rescission or annulment shall affect any subsequent Event
      of
      Default or impair any right consequent thereon. Upon an Event of Default,
      notwithstanding any other provision of this Debenture or any Transaction
      Document, the Holder shall have no obligation to comply with or adhere to any
      limitations in Section 3(b), if any, on the conversion of this Debenture or
      the
      sale of the Underlying Shares. 

     

    Section
      3. Conversion.

     

    (a) Conversion
      at Option of Holder.

     

    (i) 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, after the
      Original Issue Date (as defined in Section
      5)
      (subject to the limitations on conversion set forth in Section
      3(b)
      hereof).
      The number of shares of Common Stock issuable upon a conversion hereunder equals
      the quotient obtained by dividing (x) the outstanding amount of this Debenture
      to be converted by (y) the Conversion Price (as defined in Section
      3(c)(i)).
      The
      Obligor shall deliver, or cause its transfer agent to deliver Common Stock
      certificates to the Holder prior to the Fifth (5th)
      Trading
      Day after a Conversion Date.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (ii) Notwithstanding
      anything to the contrary contained herein, if on any Conversion Date: (1) the
      number of shares of Common Stock at the time authorized, unissued and unreserved
      for all purposes, or held as treasury stock, is insufficient to pay principal
      and interest hereunder in shares of Common Stock; (2) the Common Stock is not
      listed or quoted for trading on the OTC or on a Subsequent Market; (3) the
      Obligor has failed to timely satisfy its conversion; or (4) the issuance of
      such
      shares of Common Stock would result in a violation of Section
      3(b),
      then,
      at the option of the Holder, the Obligor, in lieu of delivering shares of Common
      Stock pursuant to Section
      3(a)(i),
      shall
      deliver, within three (3) Trading Days of each applicable Conversion Date,
      an
      amount in cash equal to the product of the outstanding principal amount to
      be
      converted plus any interest due therein divided by the Conversion Price, chosen
      by the Holder, and multiplied by the highest closing price of the stock from
      date of the conversion notice till the date that such cash payment is
      made.

     

    Further,
      if the Obligor shall not have delivered any cash due in respect of conversion
      of
      this Debenture or as payment of interest thereon by the fifth (5th)
      Trading
      Day after the Conversion Date, the Holder may, by notice to the Obligor, require
      the Obligor to issue shares of Common Stock pursuant to Section
      3(c),
      except
      that for such purpose the Conversion Price applicable thereto shall be the
      lesser of the Conversion Price on the Conversion Date and the Conversion Price
      on the date of such Holder demand. Any such shares will be subject to the
      provisions of this Section.

     

    (iii) The
      Holder shall effect conversions by delivering to the Obligor a completed notice
      in the form attached hereto as Exhibit A (a “Conversion
      Notice”).
      The
      date on which a Conversion Notice is delivered is the “Conversion
      Date.”
Unless
      the Holder is converting the entire principal amount outstanding under this
      Debenture at the time of conversion, the Holder is not required to physically
      surrender this Debenture to the Obligor in order to effect conversions.
      Conversions hereunder shall have the effect of lowering the outstanding
      principal amount of this Debenture plus all accrued and unpaid interest thereon
      in an amount equal to the applicable conversion. The Holder and the Obligor
      shall maintain records showing the principal amount converted and the date
      of
      such conversions. In the event of any dispute or discrepancy, the records of
      the
      Holder shall be controlling and determinative in the absence of manifest
      error.

     

    (b) Certain
      Conversion Restrictions.

     

    (i) A
      Holder
      may not convert this Debenture or receive shares of Common Stock as payment
      of
      interest hereunder to the extent such conversion or receipt of such interest
      payment would result in the Holder, together with any affiliate thereof,
      beneficially owning (as determined in accordance with Section 13(d) of the
      Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the
      then issued and outstanding shares of Common Stock, including shares issuable
      upon conversion of, and payment of interest on, this Debenture held by such
      Holder after application of this Section. Since the Holder will not be obligated
      to report to the Obligor the number of shares of Common Stock it may hold at
      the
      time of a conversion hereunder, unless the conversion at issue would result
      in
      the issuance of shares of Common Stock in excess of 4.9% of the then outstanding
      shares of Common Stock without regard to any other shares which may be
      beneficially owned by the Holder or an affiliate thereof, the Holder shall
      have
      the authority and obligation to determine whether the restriction contained
      in
      this Section will limit any particular conversion hereunder and to the extent
      that the Holder determines that the limitation contained in this Section
      applies, the determination of which portion of the principal amount of this
      Debenture is convertible shall be the responsibility and obligation of the
      Holder. If the Holder has delivered a Conversion Notice for a principal amount
      of this Debenture that, without regard to any other shares that the Holder
      or
      its affiliates may beneficially own, would result in the issuance in excess
      of
      the permitted amount hereunder, the Obligor shall notify the Holder of this
      fact
      and shall honor the conversion for the maximum principal amount permitted to
      be
      converted on such Conversion Date in accordance with the periods described
      in
Section
      3(a)(i)
      and, at
      the option of the Holder, either retain any principal amount tendered for
      conversion in excess of the permitted amount hereunder for future conversions
      or
      return such excess principal amount to the Holder. The provisions of this
      Section may be waived by a Holder (but only as to itself and not to any other
      Holder) upon not less than 65 days prior notice to the Obligor. Other Holders
      shall be unaffected by any such waiver.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (ii)
       In
      the
      event that the Closing Bid Price of the Common Stock is below $0.07 for ten
      (10)
      consecutive trading days then the Holder shall not convert in excess of $75,000
      of principal amount of this Debenture in a thirty (30) day period, provided
      however,
      that
      during any period that this conversion limitation is in effect, it shall cease
      to apply on the next Trading Day following the occurrence of any one of the
      following events: (i) the Closing Bid Price of the Obligor’s Common Stock is
      above $0.07, or (ii) the Closing Bid Price of the Obligor’s Common Stock is
      below $0.07 for forty (40) consecutive Trading Days, or (iii) an Event of
      Default. 

     

    (c) Conversion
      Price and Adjustments to Conversion Price.

     

    (i) The
      conversion price shall equal the lesser of (i) a price equal to ____________(
      the “Fixed
      Conversion Price”)
      or
      (ii) ninety percent (90%) of the lowest daily Volume Weighted Average Price
      of the Common Stock during the ten (10) trading days immediately preceding
      the
      Conversion Date as quoted by Bloomberg, LP (the “Market
      Conversion Price”).
      The
      Fixed Conversion Price and the Market Conversion Price are collectively referred
      to as the “Conversion
      Price.”
The
      Conversion Price may be adjusted pursuant to the other terms of this
      Debenture.

     

    (ii) If
      the
      Obligor, at any time while this Debenture is outstanding, shall (a) pay a
      stock dividend or otherwise make a distribution or distributions on shares
      of
      its Common Stock or any other equity or equity equivalent securities payable
      in
      shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
      a
      larger number of shares, (c) combine (including by way of reverse stock split)
      outstanding shares of Common Stock into a smaller number of shares, or (d)
      issue
      by reclassification of shares of the Common Stock any shares of capital stock
      of
      the Obligor, then the Fixed 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 before such event and of which the
      denominator shall be the number of shares of Common Stock outstanding 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.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (iii) If
      the
      Obligor, at any time while this Debenture is outstanding, shall issue rights,
      options or warrants to all holders of Common Stock (and not to the Holder)
      entitling them to subscribe for or purchase shares of Common Stock at a price
      per share less than the Fixed Conversion Price, then the Fixed Conversion Price
      shall be multiplied by a fraction, of which the denominator shall be the number
      of shares of the Common Stock (excluding treasury shares, if any) outstanding
      on
      the date of issuance of such rights or warrants (plus the number of additional
      shares of Common Stock offered for subscription or purchase), and of which
      the
      numerator shall be the number of shares of the Common Stock (excluding treasury
      shares, if any) outstanding on the date of issuance of such rights or warrants,
      plus the number of shares which the aggregate offering price of the total number
      of shares so offered would purchase at the Fixed Conversion Price. Such
      adjustment shall be made whenever such rights or warrants are issued, and shall
      become effective immediately after the record date for the determination of
      stockholders entitled to receive such rights, options or warrants. However,
      upon
      the expiration of any such right, option or warrant to purchase shares of the
      Common Stock the issuance of which resulted in an adjustment in the Fixed
      Conversion Price pursuant to this Section, if any such right, option or warrant
      shall expire and shall not have been exercised, the Fixed Conversion Price
      shall
      immediately upon such expiration be recomputed and effective immediately upon
      such expiration be increased to the price which it would have been (but
      reflecting any other adjustments in the Fixed Conversion Price made pursuant
      to
      the provisions of this Section after the issuance of such rights or warrants)
      had the adjustment of the Fixed Conversion Price made upon the issuance of
      such
      rights, options or warrants been made on the basis of offering for subscription
      or purchase only that number of shares of the Common Stock actually purchased
      upon the exercise of such rights, options or warrants actually
      exercised.

     

    (iv) If
      the
      Obligor or any subsidiary thereof, as applicable, at any time while this
      Debenture is outstanding, shall issue, other than Excluded Securities, shares
      of
      Common Stock or rights, warrants, options or other securities or debt that
      are
      convertible into or exchangeable for shares of Common Stock (“Common
      Stock Equivalents”)
      entitling any Person to acquire shares of Common Stock, at a price per share
      less than the Fixed Conversion Price (if the holder of the Common Stock or
      Common Stock Equivalent 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 a price per share which is less than the Fixed Conversion
      Price, such issuance shall be deemed to have occurred for less than the Fixed
      Conversion Price), then, at the sole option of the Holder, the Fixed Conversion
      Price shall be adjusted immediately thereafter so that it shall equal the price
      determined by multiplying the Fixed Conversion Price in effect immediately
      prior
      thereto by a fraction, the numerator of which shall be the sum of the number
      of
      shares of Common Stock outstanding immediately prior to the issuance of such
      additional shares and the number of shares of Common Stock which the aggregate
      consideration received for the issuance of such additional shares would purchase
      at such current market price per share of Common Stock, and the denominator
      of
      which shall be the number of shares of Common Stock outstanding immediately
      after the issuance of such additional shares. Such adjustment shall be made
      whenever such Common Stock or Common Stock Equivalents are issued. The Obligor
      shall notify the Holder in writing, no later than one (1) business day following
      the issuance of any Common Stock or Common Stock Equivalent subject to this
      Section, indicating therein the applicable issuance price, or of applicable
      reset price, exchange price, conversion price and other pricing terms. No
      adjustment under this Section shall be made as a result of issuances and
      exercises of options to purchase shares of Common Stock issued for compensatory
      purposes pursuant to any of the Obligor's stock option or stock purchase
      plans.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (v) If
      the
      Obligor, at any time while this Debenture is outstanding, shall distribute
      to
      all holders of Common Stock (and not to the Holder) evidences of its
      indebtedness or assets or rights or warrants to subscribe for or purchase any
      security, then in each such case the Fixed Conversion Price at which this
      Debenture shall thereafter be convertible shall be determined by multiplying
      the
      Fixed 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 Closing Bid Price determined
      as
      of the record date mentioned above, and of which the numerator shall be such
      Closing Bid Price 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.

     

    (vi) In
      case
      of any reclassification of the Common Stock or any compulsory share exchange
      pursuant to which the Common Stock is converted into other securities, cash
      or
      property, the Holder shall have the right thereafter to, at its option, (A)
      convert the then outstanding principal amount, together with all accrued but
      unpaid interest and any other amounts then owing hereunder in respect of this
      Debenture into the shares of stock and other securities, cash and property
      receivable upon or deemed to be held by holders of the Common Stock following
      such reclassification or share exchange, and the Holder of this Debenture shall
      be entitled upon such event to receive such amount of securities, cash or
      property as the shares of the Common Stock of the Obligor into which the then
      outstanding principal amount, together with all accrued but unpaid interest
      and
      any other amounts then owing hereunder in respect of this Debenture could have
      been converted immediately prior to such reclassification or share exchange
      would have been entitled, or (B) require the Obligor to prepay the outstanding
      principal amount of this Debenture, plus all interest and other amounts due
      and
      payable thereon. The entire prepayment price shall be paid in cash. This
      provision shall similarly apply to successive reclassifications or share
      exchanges.

     

    (vii) The
      Obligor shall at all times reserve and keep available out of its authorized
      Common Stock the full number of shares of Common Stock issuable upon conversion
      of all outstanding amounts under this Debenture; and within three (3) Business
      Days following the receipt by the Obligor of a Holder's notice that such minimum
      number of Underlying Shares is not so reserved, the Obligor shall promptly
      reserve a sufficient number of shares of Common Stock to comply with such
      requirement.

     

    (viii) All
      calculations under this Section
      3
      shall be
      rounded up to the nearest $0.001 or whole share.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (ix) Whenever
      the Conversion Price is adjusted pursuant to Section
      3
      hereof,
      the Obligor shall promptly mail to the Holder a notice setting forth the
      Conversion Price after such adjustment and setting forth a brief statement
      of
      the facts requiring such adjustment.

     

    (x) If
      (A)
      the Obligor shall declare a dividend (or any other distribution) on the Common
      Stock; (B) the Obligor shall declare a special nonrecurring cash dividend on
      or
      a redemption of the Common Stock; (C) the Obligor 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 Obligor shall be required in connection
      with
      any reclassification of the Common Stock, any consolidation or merger to which
      the Obligor is a party, any sale or transfer of all or substantially all of
      the
      assets of the Obligor, of any compulsory share exchange whereby the Common
      Stock
      is converted into other securities, cash or property; or (E) the Obligor shall
      authorize the voluntary or involuntary dissolution, liquidation or winding
      up of
      the affairs of the Obligor; then, in each case, the Obligor 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 address as
      it
      shall appear upon the stock books of the Obligor, at least twenty (20) calendar
      days prior to the applicable record or effective date hereinafter specified,
      a
      notice stating (x) the date on which a record is to be taken for the purpose
      of
      such dividend, distribution, redemption, rights or warrants, or if a record
      is
      not to be taken, the date as of which the holders of the Common Stock of record
      to be entitled to such dividend, distributions, redemption, rights or warrants
      are to be determined or (y) the date on which such reclassification,
      consolidation, merger, sale, transfer or share exchange is expected to become
      effective or close, and the date as of which it is expected that holders of
      the
      Common Stock of record shall be entitled to exchange their shares of the Common
      Stock for securities, cash or other property deliverable upon such
      reclassification, consolidation, merger, sale, transfer or share exchange,
      provided, that the failure to 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 calendar period commencing the date of such notice to the
      effective date of the event triggering such notice.

     

    (xi) In
      case
      of any (1) merger or consolidation of the Obligor or any subsidiary of the
      Obligor with or into another Person, or (2) sale by the Obligor or any
      subsidiary of the Obligor of more than one-half of the assets of the Obligor
      in
      one or a series of related transactions, a Holder shall have the right to (A)
      exercise any rights under Section
      2(b),
      (B)
      convert the aggregate amount of this Debenture then outstanding into the shares
      of stock and other securities, cash and property receivable upon or deemed
      to be
      held by holders of Common Stock following such merger, consolidation or sale,
      and such Holder shall be entitled upon such event or series of related events
      to
      receive such amount of securities, cash and property as the shares of Common
      Stock into which such aggregate principal amount of this Debenture could have
      been converted immediately prior to such merger, consolidation or sales would
      have been entitled, or (C) in the case of a merger or consolidation, require
      the
      surviving entity to issue to the Holder a convertible Debenture with a principal
      amount equal to the aggregate principal amount of this Debenture then held
      by
      such Holder, plus all accrued and unpaid interest and other amounts owing
      thereon, which such newly issued convertible Debenture shall have terms
      identical (including with respect to conversion) to the terms of this Debenture,
      and shall be entitled to all of the rights and privileges of the Holder of
      this
      Debenture set forth herein and the agreements pursuant to which this Debentures
      were issued. In the case of clause (C), the conversion price applicable for
      the
      newly issued shares of convertible preferred stock or convertible Debentures
      shall be based upon the amount of securities, cash and property that each share
      of Common Stock would receive in such transaction and the Conversion Price
      in
      effect immediately prior to the effectiveness or closing date for such
      transaction. The terms of any such merger, sale or consolidation shall include
      such terms so as to continue to give the Holder the right to receive the
      securities, cash and property set forth in this Section upon any conversion
      or
      redemption following such event. This provision shall similarly apply to
      successive such events.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    (d) Other
      Provisions.

     

    (i) The
      Obligor 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, not less
      than such number of shares of the Common Stock as shall (subject to any
      additional requirements of the Obligor as to reservation of such shares set
      forth in this Debenture) be issuable (taking into account the adjustments and
      restrictions of Sections
      2(b) and 3(c))
      upon
      the conversion of the outstanding principal amount of this Debenture and payment
      of interest hereunder. The Obligor 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 Underlying Shares Registration
      Statement has been declared effective under the Securities Act, registered
      for
      public sale in accordance with such Underlying Shares Registration
      Statement.

     

    (ii) Upon
      a
      conversion hereunder the Obligor 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
      share based on the Closing Bid Price at such time. If the Obligor 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.

     

    (iii) The
      issuance of certificates for shares of the Common Stock on conversion of this
      Debenture shall be made without charge to the Holder thereof for any documentary
      stamp or similar taxes that may be payable in respect of the issue or delivery
      of such certificate, provided that the Obligor 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 such Debenture so converted and the Obligor 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 Obligor the amount of
      such tax or shall have established to the satisfaction of the Obligor that
      such
      tax has been paid.

     

    (iv) Nothing
      herein shall limit a Holder's right to pursue actual damages or declare an
      Event
      of Default pursuant to Section
      2
      herein
      for the Obligor 's failure to deliver certificates representing shares of Common
      Stock upon conversion 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, in each case without the need to post a bond or provide
      other
      security. 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. 

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    (v) In
      addition to any other rights available to the Holder, if the Obligor fails
      to
      deliver to the Holder such certificate or certificates pursuant to Section
      3(a)(i) by
      the
      fifth (5th)
      Trading
      Day after the Conversion Date, and if after such fifth (5th)
      Trading
      Day the Holder purchases (in an open market transaction or otherwise) Common
      Stock to deliver in satisfaction of a sale by such Holder of the Underlying
      Shares which the Holder anticipated receiving upon such conversion (a
“Buy-In”),
      then
      the Obligor shall (A) pay in cash to the Holder (in addition to any remedies
      available to or elected 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 market price of the Common Stock at the time of
      the
      sale giving rise to such purchase obligation and (B) at the option of the
      Holder, either reissue a Debenture in the 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 Obligor timely
      complied with its delivery requirements under Section
      3(a)(i).
      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 Debentures
      with respect to which the market price of the Underlying Shares on the date
      of
      conversion was a total of $10,000 under clause (A) of the immediately preceding
      sentence, the Obligor shall be required to pay the Holder $1,000. The Holder
      shall provide the Obligor written notice indicating the amounts payable to
      the
      Holder in respect of the Buy-In.

     

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

    

    

    
      	
              If
                to the Company, to:

            	
              Astris
                Energi, Inc.

            
	 	
              2175
                Dunwin Drive, Unit 6

            
	 	
              Mississauga,
                ON L5L 1X2

            
	 	
              Attention: Jiri
                Nor

            
	 	
              Telephone: (905)
                608-2000

            
	 	
              Facsimile: (905)
                608-8222

            
	 	 
	
              With
                a copy to: 

            	
              Ellenoff
                Grossman & Schole LLP

            
	 	
              370
                Lexington Avenue, 19th
                Floor

            
	 	
              New
                York, NY 10017

            
	 	
              Telephone: 
                (212) 370-1300

            
	 	
              Facsimile:
                 (212)
                370-7889

            
	 	 
	
              If
                to the Holder:

            	
              Cornell
                Capital Partners, LP

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07303

            
	 	
              Attention: Mark
                Angelo

            
	 	
              Telephone: (201)
                985-8300

            

    

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    
      	 	 
	
              With
                a copy to:

            	
              David
                Gonzalez, Esq. 

            
	 	
              101
                Hudson Street - Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 

    

    

    or
      at
      such other address and/or facsimile number and/or to the attention of such
      other
      person as the recipient party has specified by written notice given to each
      other party three (3) business days prior to the effectiveness of such change.
      Written confirmation of receipt (i) given by the recipient of such notice,
      consent, waiver or other communication, (ii) mechanically or electronically
      generated by the sender's facsimile machine containing the time, date, recipient
      facsimile number and an image of the first page of such transmission or (iii)
      provided by a nationally recognized overnight delivery service, shall be
      rebuttable evidence of personal service, receipt by facsimile or receipt from
      a
      nationally recognized overnight delivery service in accordance with clause
      (i),
      (ii) or (iii) above, respectively.

     

    Section
      5. Definitions.
      For the
      purposes hereof, the following terms shall have the following
      meanings:

     

    “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 are
      authorized or required by law or other government action to close.

     

    “Change
      of Control Transaction”
means,
      except with respect to mergers or acquisitions by the Obligor in the normal
      course of business and in industries related to the Obligor’s, the occurrence of
      (a) an acquisition after the date hereof by an individual or legal entity or
      “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
      effective control (whether through legal or beneficial ownership of capital
      stock of the Obligor, by contract or otherwise) of in excess of fifty percent
      (50%) of the voting securities of the Obligor (except that the acquisition
      of
      voting securities by the Holder shall not constitute a Change of Control
      Transaction for purposes hereof), (b) a replacement at one time or over time
      of
      more than one-half of the members of the board of directors of the Obligor
      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), (c) the merger, consolidation or sale
      of
      fifty percent (50%) or more of the assets of the Obligor or any subsidiary
      of
      the Obligor in one or a series of related transactions with or into another
      entity, or (d) the execution by the Obligor of an agreement to which the Obligor
      is a party or by which it is bound, providing for any of the events set forth
      above in (a), (b) or (c).

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock, no par value, of the Obligor and stock of any other class
      into
      which such shares may hereafter be changed or reclassified.

     

    “Conversion
      Date”
shall
      mean the date upon which the Holder gives the Obligor notice of their intention
      to effectuate a conversion of this Debenture into shares of the Company’s Common
      Stock as outlined herein.

     

    “Closing
      Bid Price”
means
      the price per share in the last reported trade of the Common Stock on the OTC
      or
      on the exchange which the Common Stock is then listed as quoted by Bloomberg,
      LP.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Excluded
      Securities”
means,
      provided such security is issued at a price which is greater than or equal
      to
      the arithmetic average of the Closing Bid Prices of the Common Stock for the
      ten
      (10) consecutive trading days immediately preceding the date of issuance, any
      of
      the following: (a) any issuance by the Obligor of securities in connection
      with
      a strategic partnership or a joint venture (the primary purpose of which is
      not
      to raise equity capital), (b) any issuance by the Obligor of securities as
      consideration for a merger or consolidation or the acquisition of a business,
      product, license, or other assets of another person or entity (c) shares of
      Common Stock issued to employees, consultants, officers, or directors of the
      Company under the Company’s stock incentive plan and approved by the Company’s
      board of directors, (d) options to purchase shares of Common Stock, provided
      (1)
      such options are issued after the date of this Debenture, (2) such options
      are
      issued to employees, consultants, officers or directors of the Obligor within
      thirty (30) days of such employee’s starting his employment with the Obligor,
      and (3) the exercise price of such options is not less than the Closing Bid
      Price of the Common Stock on the date of issuance of such option, and (e)
      issuances of Common Stock upon exercise or conversion of currently outstanding
      derivative securities.

     

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

     

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

     

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

     

    “Trading
      Day”
means
      a
      day on which the shares of Common Stock are quoted on the OTC or quoted or
      traded on such Subsequent Market on which the shares of Common Stock are then
      quoted or listed; provided, that in the event that the shares of Common Stock
      are not listed or quoted, then Trading Day shall mean a Business
      Day.

     

    “Transaction
      Documents”
means
      the Securities Purchase Agreement or any other agreement delivered in connection
      with the Securities Purchase Agreement, including, without limitation, the
      Pledge Agreement, the Security Agreement, the Subsidiary Security Agreements,
      the Irrevocable Transfer Agent Instructions, and the Registration Rights
      Agreement.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    “Underlying
      Shares”
means
      the shares of Common Stock issuable upon conversion of this Debenture or as
      payment of interest in accordance with the terms hereof.

     

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

     

    Section
      6. Except
      as
      expressly provided herein, no provision of this Debenture shall alter or impair
      the obligations of the Obligor, which are absolute and unconditional, to pay
      the
      principal of, interest and other charges (if any) on, this Debenture at the
      time, place, and rate, and in the coin or currency, herein prescribed. This
      Debenture is a direct obligation of the Obligor. This Debenture ranks pari
      passu
      with all other Debentures now or hereafter issued under the terms set forth
      herein. As long as this Debenture is outstanding, the Obligor shall not and
      shall cause their subsidiaries not to, without the consent of the Holder, (i)
      amend its certificate of incorporation, bylaws or other charter documents so
      as
      to adversely affect any rights of the Holder; (ii) repay, repurchase or offer
      to
      repay, repurchase or otherwise acquire shares of its Common Stock or other
      equity securities other than as to the Underlying Shares to the extent permitted
      or required under the Transaction Documents; or (iii) enter into any agreement
      with respect to any of the foregoing. 

     

    Section
      7. This
      Debenture shall not entitle the Holder to any of the rights of a stockholder
      of
      the Obligor, including without limitation, the right to vote, to receive
      dividends and other distributions, or to receive any notice of, or to attend,
      meetings of stockholders or any other proceedings of the Obligor, unless and
      to
      the extent converted into shares of Common Stock in accordance with the terms
      hereof.

     

    Section
      8. If
      this
      Debenture is mutilated, lost, stolen or destroyed, the Obligor shall execute
      and
      deliver, in exchange and substitution for and upon cancellation of the 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
      Obligor.

     

    Section
      9. No
      indebtedness of the Obligor is senior to this Debenture in right of payment,
      whether with respect to interest, damages or upon liquidation or dissolution
      or
      otherwise. Without the Holder’s consent, the Obligor will not and will not
      permit any of their subsidiaries to, directly or indirectly, enter into, create,
      incur, assume or suffer to exist any indebtedness 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 there from that is senior in any
      respect to the obligations of the Obligor under this Debenture.

     

    Section
      10. This
      Debenture shall be governed by and construed in accordance with the laws of
      the
      State of New Jersey, without giving effect to conflicts of laws thereof. Each
      of
      the parties consents to the jurisdiction of the Superior Courts of the State
      of
      New Jersey sitting in Hudson County, New Jersey and the U.S. District Court
      for the District of New Jersey sitting in Newark, New Jersey in connection
      with
      any dispute arising under this Debenture and hereby waives, to the maximum
      extent permitted by law, any objection, including any objection based on
forum non conveniens
      to the
      bringing of any such proceeding in such jurisdictions. 

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    Section
      11. If
      the
      Obligor fails to strictly comply with the terms of this Debenture, then the
      Obligor shall reimburse the Holder promptly for all fees, costs and expenses,
      including, without limitation, attorneys’ fees and expenses incurred by the
      Holder in any action in connection with this Debenture, including, without
      limitation, those incurred: (i) during any workout, attempted workout, and/or
      in
      connection with the rendering of legal advice as to the Holder’s rights,
      remedies and obligations, (ii) collecting any sums which become due to the
      Holder, (iii) defending or prosecuting any proceeding or any counterclaim to
      any
      proceeding or appeal; or (iv) the protection, preservation or enforcement of
      any
      rights or remedies of the Holder.

     

    Section
      12. Any
      waiver by 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
      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.

     

    Section
      13. 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 shall violate applicable laws governing
      usury, the applicable rate of interest due hereunder shall automatically be
      lowered to equal the maximum permitted rate of interest. The Obligor covenants
      (to the extent that it may lawfully do so) that it shall not at any time insist
      upon, plead, or in any manner whatsoever claim or take the benefit or advantage
      of, any stay, extension or usury law or other law which would prohibit or
      forgive the Obligor 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 Obligor (to the extent it may lawfully
      do
      so) hereby expressly waives all benefits or advantage of any such law, and
      covenants that it will not, by resort to any such law, hinder, delay or 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.

     

    Section
      14. 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.

     

    Section
      15. THE
      PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY
      OF
      THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
      OR
      ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
      DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
      OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
      FOR
      THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

     

    [REMAINDER
      OF PAGE INTENTIONLLY LEFT BLANK]

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    

     

    IN
      WITNESS WHEREOF,
      the
      Obligor has caused this Secured Convertible Debenture to be duly executed by
      a
      duly authorized officer as of the date set forth above.

     

    
      	 	
              ASTRIS
                ENERGI, INC. 

            
	 	 
	 	
              By:
                /s/
                Anthony J. Durkacz

            
	 	
              Name: Anthony
                J. Durkacz

            
	 	
              Title: Chief
                Financial Officer

            

    

    

    

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    EXHIBIT
      “A”

     

    NOTICE
      OF CONVERSION

     

    (To
      be executed by the Holder in order to convert the
      Debenture)

     

    

    
      	
               

              TO:

               

            	 

    

    

    The
      undersigned hereby irrevocably elects to convert $     
      of the
      principal amount of the above Debenture into Shares of Common Stock of Astris
      Energi, Inc., according to the conditions stated therein, as of the Conversion
      Date written below.

     

    
      	
               

              Conversion
                Date:

            	 
	
               

              Applicable
                Conversion Price:

            	 
	
               

              Signature:

            	 
	
               

              Name:

            	 
	
               

              Address:

            	 
	
               

              Amount
                to be converted:

            	
               

              $          

            
	
               

              Amount
                of Debenture unconverted:

            	
               

              $          

            
	
               

              Conversion
                Price per share: 

            	
               

              $          

            
	
               

              Number
                of shares of Common Stock to be issued:

            	 
	
               

              Please
                issue the shares of Common Stock in the following name and to the
                following address:

            	 
	
               

              Issue
                to:

            	 
	
               

              Authorized
                Signature:

            	 
	
               

              Name:

            	 
	
               

              Title:

            	 
	
               

              Phone
                Number:

            	 
	
               

              Broker
                DTC Participant Code:

            	 
	
               

              Account
                Number:

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