Document:

EX 10.18

    EXHIBIT
      10.18

    

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

     

     

    CONVERTIBLE
      DEBENTURE

     

    
      	
              Principal
                Amount: <Amount>

            	
              Maturity
                Date: December
                10, 2005

            

    

    

     

    1.    Promise
      to Pay.
      FOR
      VALUE RECEIVED,
      the
      undersigned, ASTRIS
      ENERGI INC. (the
      “Company”)
      promises to pay to or to the order of NBCN
      Clearing Inc. ITF 3C-S841-A, <Name>, <Address>(the
      “Holder”),
      or
      such other place and/or person as the Holder may by notice in writing to the
      Company direct, the principal amount of<Amount>
THOUSAND
      DOLLARS in
      lawful
      money of Canada ($__0,000) (the “Principal
      Amount”),
      together with all other moneys which may from time to time be owing hereunder
      or
      pursuant hereto, as hereinafter provided on and subject to the following terms
      and conditions:

     

    2.    Definitions.
      As
      used
      herein, the following terms shall have the following respective meanings, unless
      the context otherwise requires:

     

    “Business
      Day” means
      any
      day except Saturday, Sunday or any other day on which chartered banks in the
      City of Toronto are generally not open for business.

     

    “Capital
      Reorganization”
      has the
      meaning ascribed thereto in Section 9 hereof.

     

    “Charged
      Assets”
      has the
      meaning attributed thereto in Section 14.1(f);

     

    “Common
      Shares” means
      the
      common shares in the capital of the Company as such shares exist at the close
      of
      business on the date of execution and delivery of this Debenture; provided
      that
      in the event of a change, subdivision, reclassification or consolidation thereof
      or successive changes, subdivisions, reclassifications or consolidations, then,
      subject to adjustments, if any, having been made in accordance with Section
      6,
“Common Shares” shall thereafter mean the shares resulting from such change,
      subdivision, reclassification or consolidation.

     

    “Common
      Share Reorganization”
      has the
      meaning ascribed thereto in Section 9 hereof.

     

    “Company”
      means
      Astris Energi Inc., a corporation continued under the laws of
      Ontario.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    “Conversion
      Date” means
      the
      date on which this Debenture is surrendered for conversion.

     

    “Conversion
      Price” means,
      unless and until adjusted in accordance with Section 9 hereof, the following
      prices at which the outstanding Principal Amount shall be convertible into
      Common Shares
      subject
      to a minimum share price of USD $0.20 and a maximum share price of USD
      $0.70:

     

    
      	 	
              (a)

            	
              in
                connection with a forced conversion by the Company under Section
                5 hereof:
                

            

    

     

    
      	
            	(i)	
              upon
                completion of a financing (the "Equity Financing") and the receipt
                by the
                Company of conditional approval of the TSXV for the listing of the
                Company’s Common Shares thereon, at a conversion price equal to the lesser
                of:

            

    

     

    
      	
            	(a)	
              the
                conversion price described below in (b);
                and

            

    

     

    
      	 	
              (b)

            	
              the
                price at which the Company’s Common Shares are offered in the Equity
                Financing; 

            

    

     

    
      	 	
              (ii)

            	
              in
                the event that the Equity Financing includes the issuance of warrants,
                the
                Company undertakes to issue warrants (the "Warrants") to each Subscriber
                for Debentures on the same terms and conditions to those issued pursuant
                to the Equity Financing; and

            

    

    

    
      	 	
              (b)

            	
              in
                connection with a conversion at the option of the Holder under section
                6
                hereof:

            

    

     

    
      	 	
              (i)

            	
              at
                the holder’s
                option at a 20% discount to the average closing price in the 5 preceding
                trading days of the Company’s shares listed on the Nasdaq OTC BB (the
                "Exchange") prior to conversion or a 20% discount to the average
                closing
                price in the 5 preceding trading days of the Company’s shares listed on
                the Exchange at the date that this agreement is signed, whichever
                is the
                lesser.

            

    

     

    “Converted
      Shares” has
      the
      meaning ascribed thereto in Section 8 hereof.

     

    “Debenture”
      means
      this convertible debenture as it may be amended or supplemented from time to
      time.

     

    “Encumbrance”
      means
      any mortgage, charge, hypothec, pledge, security interest, encumbrance, lien
      or
      deposit arrangement or any other arrangement or condition that in substance
      secures the payment of any indebtedness or liability or the observance or
      performance of any obligation, regardless of form and whether consensual or
      arising from law, statutory or otherwise;

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    “Equity
      Financing” means
      the
      proposed sale by the Company from treasury of securities on a private placement
      basis with a view to raising proceeds of a minimum of $2,500,000 and a maximum
      of $3,500,000.

     

    “Exchange
      Rate”
      means
      the rate reported by the Bank of Canada as its daily official noon (Toronto
      time) rate of exchange for converting U.S. Dollars into Canadian Dollars on
      the
      day in question.

     

    “Event
      of Default” means
      any
      one or more of the events described in Section 16 hereof.

     

    “Holder”
      means
<Name>.

     

    “Intellectual
      Property Rights”
      means
      the intellectual property set out in Schedule C.

     

    “Maturity
      Date” means
      December 10, 2005.

     

    “NASDAQ
      BB”
      means
      the National Association of Securities Dealers’ over-the-counter bulletin board
      quotation system.

     

    “Official
      Body”
      means
      any government or political subdivision or any agency, authority, bureau,
      central bank, commission, department or instrumentality of either, or any court,
      tribunal, grand jury or arbitrator, whether foreign or domestic;

     

    “Person”
      includes
      an individual, a trust, a partnership, a body corporate or politic, a syndicate,
      a joint venture, a company, an association and any other form of incorporated
      or
      unincorporated organization or entity.

     

    “Permitted
      Encumbrances”
      means
      collectively:

    

    
      	 	
              (a)

            	
              liens
                for taxes, assessments and governmental charges not yet due or, if
                due,
                the validity of which is being diligently contested in good faith
                and by
                appropriate proceedings and in respect of which adequate provision
                has
                been made on the books of the
                Company;

            

    

    

    
      	 	
              (b)

            	
              mechanics',
                workers', repairers' or other like possessory liens in respect of
                any
                personal property, arising in the ordinary course of business for
                amounts
                the payment of which is either not yet due or, if due, representing,
                in
                the aggregate, less than Ten Thousand Dollars ($10,000) or, if greater
                than such amount, the validity of which is being contested in good
                faith
                and by appropriate proceedings and in respect of which adequate provision
                has been made on the books of the
                Company;

            

    

    

    
      	 	
              (c)

            	
              liens
                arising out of judgments or awards representing, in the aggregate,
                less
                than Ten Thousand Dollars ($10,000) or, if greater than such amount,
                with
                respect to which at any time an appeal or proceeding for review is
                being
                prosecuted in good faith and by appropriate proceedings and in respect
                of
                which adequate provision has been made on the books of the Company,
                and
                with respect to which there shall have been secured a stay of execution
                pending such appeal or proceeding for
                review;

            

    

     

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    
      	 	
              (d)

            	
              servitudes,
                easements, restrictions, rights-of-way and other similar rights in
                real or
                immovable property or any interest therein which will not in the
                aggregate
                materially impair any Encumbrance on such property in favour of the
                Holder
                or the value or use of such
                property;

            

    

    
      	 	 	 

      	 	
              (e)

            	
              the
                liens resulting from the deposits of cash or securities in connection
                with
                contracts, tenders or compensation, surety or appeal bonds or costs
                of
                litigation when required by law;

            

    

    

    
      	 	
              (f)

            	
              liens
                given to a public utility or any municipality or governmental or
                other
                public authority when required to obtain the services of such utility
                or
                other authority in connection with the operations of the Company
                in the
                ordinary course of its business; 

            

    

    

    
      	 	
              (g)

            	
              purchase
                money security interests and capital leases entered into by the Company
                in
                the ordinary course of business;
                and

            

    

    

    
      	 	
              (h)

            	
              the
                Encumbrances set out on Schedule B or
                the continued existence of which have been consented to by the Holder,
                including the renewal, extension or refinancing of any such Encumbrance
                and of the Debt secured thereby upon the same property provided that
                such
                Debt and the security therefor are not increased thereby. [NOTE:
                Include existing PPSA registration in favour of Energy
                Ventures.]

            

    

     

    “Principal
      Amount” has
      the
      meaning ascribed thereto in Section 1 hereof.

     

    “Rights
      Offering” has
      the
      meaning ascribed thereto in Section 9 hereof.

     

    “Special
      Distribution” has
      the
      meaning ascribed thereto in Section 9 hereof.

     

    “TSXV”
      means
      the TSX Venture Exchange.

     

    3.    Interest.
      Interest
      shall accrue on any Principal Amount outstanding hereunder at 6% per annum:
      

     

    
      	
            	(a)	
              from
                the date hereof until the date which is 270 days after the date hereof
                or
                the Conversion Date, whichever is earlier, interest shall accrue
                at an
                annual rate of 6% calculated monthly, not in
                advance.

            

    

     

    Interest
      shall be paid upon conversion on the Conversion Date in common shares of the
      Company at the Conversion Price or Forced Conversion Price or, if applicable,
      upon maturity on the Maturity Date in cash.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    4.    Payment.
      Except
      for any Principal Amount converted into Common Shares in accordance with Section
      5 or Section 6 hereof: 

     

    
      	
            	(b)	
              The
                Company shall pay in full the Principal Amount outstanding as of
                the
                Maturity Date, on the Maturity
                Date.

            

    

     

    5.    Forced
      Conversion.  

     

    2.    The
      Common Shares are currently quoted on the NASDAQ BB. In connection with the
      Equity Financing, the Company is proposing to apply to list the Common Shares
      on
      the TSXV. In the event that the TSXV approves the listing of the Common Shares,
      the Company shall have the right, at any time after receipt of such approval
      from the TSXV, to require the conversion of this Debenture, in whole, including
      any accrued interest, into fully paid and non-assessable Common Shares of the
      Company at the Conversion Price.

     

    3.    To
      exercise its right to require the conversion of this Debenture pursuant to
      section 5 hereof, the Company shall provide the Holder with written notice
      specifying the effective date of the conversion, the applicable Conversion
      Price
      and the
      number of Common Shares issuable on the conversion. Within 2 Business Days
      after
      receipt of such notice, the Holder shall surrender this Debenture to the Company
      for conversion. As soon as practicable after the receipt of this Debenture,
      the
      Company shall issue Common Shares to the Holder in accordance with section
      8
      hereof.

     

    6.    Conversion
      at Option of Holder.
      

     

    
      
        	
              	(a)	
                This
                  Debenture is convertible, in whole, at the option of the Holder,
                  including
                  any accrued interest, at any time prior to the close of business
                  on the
                  Business Day immediately preceding the Maturity Date into fully
                  paid and
                  non-assessable Common Shares of the Company at the
                  Conversion Price.

              

      

    

     

    
      
        	
              	(b)	
                To
                  exercise its right to require the conversion of this Debenture
                  pursuant to
                  section 6 hereof, the Holder shall provide the Company with written
                  notice
                  specifying the effective date of the conversion, the applicable
                  Conversion
                  Price
                  and the number of Common Shares issuable on the conversion, together
                  with
                  this Debenture. As soon as practicable after receipt of such notice
                  and
                  this Debenture, the Company shall issue Common Shares to the Holder
                  in
                  accordance with section 8 hereof.

              

      

    

     

    7.    Regulatory
      Approval. The
      conversion of any Principal Amount or accrued interest owing under this
      Debenture shall be conditional upon the Company obtaining all necessary
      regulatory approvals required in connection therewith.

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    8.    Issue
      of Shares Upon Conversion.
      

     

    
      	 	
              (a)

            	
              Issue
                of Shares.
                Upon conversion of this Debenture in accordance with the terms hereof,
                the
                Company shall issue to the Holder, or to its written order, certificates
                representing such number of Common Shares (the “Converted
                Shares”)
                as are issuable in accordance with the provisions hereof. The Principal
                Amount of this Debenture shall be deemed to be repaid in full by
                the
                issuance of the Converted Shares. 

            

    

     

    
      	 	
              (b)

            	
              Reservation
                of Shares.
                The Company shall at all times so long as any portion of this Debenture
                remains outstanding ensure that there remains available out of its
                authorized but unissued Common Shares, for the purpose of effecting
                the
                conversion of this Debenture, such number of Common Shares as shall
                from
                time to time be sufficient to effect the conversion of this Debenture.
                The
                Company covenants that all Common Shares which shall be issued on
                conversion of this Debenture shall be duly and validly issued as
                fully
                paid and non-assessable shares. As a condition precedent to the taking
                of
                any action which would result in an adjustment to the Conversion
                Price,
                the Company shall take any corporate action which may be necessary
                in
                order that the securities to which the Holder is entitled on the
                full
                exercise of its conversion rights in accordance with the provisions
                hereof
                shall be available for such purpose and that such shares may be validly
                and legally issued as fully paid and non-assessable
                shares.

            

    

     

    
      
        	
              	(a)	
                No
                  Requirement to Issue Fractional Shares.
                  No fractional Common Share or scrip representing fractional shares
                  shall
                  be issued upon the conversion of this Debenture. If any fractional
                  interest in a Common Share would, except for the provisions of
                  this
                  Section, be deliverable upon conversion, the Company shall pay
                  to
                  the
                  Holder an
                  amount in cash equal (to the nearest cent) to the appropriate fraction
                  of
                  the Conversion Price.

              

      

    

     

    
      
        	
              	(b)	
                Fully
                  Paid Shares.
                  The Company covenants that all Common Shares which shall be issued
                  in
                  accordance with the terms of this Debenture shall be duly and validly
                  issued as fully paid and non-assessable shares.

              

      

    

     

    9.    Anti-Dilution
      Provisions

     

    
      	 	
              (a)

            	
              Adjustment
                to Conversion Price.
                The Conversion Price in effect at any date shall be subject to adjustment
                from time to time as follows:

            

    

     

    
      
        	
              	(i)	
                If
                  and whenever at any time while any portion of this Debenture remains
                  outstanding the Company shall (i) subdivide its then outstanding
                  Common
                  Shares into a greater number of Common Shares, (ii) consolidate
                  its then
                  outstanding Common Shares into a lesser number of Common Shares,
                  or (iii)
                  issue Common Shares (or securities exchangeable for or convertible
                  into
                  Common Shares) to the holders of all or substantially all of the
                  outstanding Common Shares by way of stock dividend (any of such
                  events in
                  these clauses (i), (ii) and (iii) being called a “Common
                  Share Reorganization”),
                  then the Conversion Price shall be adjusted effective immediately
                  on the
                  effective date of the event in (i) or (ii) above or the record
                  date at
                  which the holders of Common Shares are determined for the purposes
                  of any
                  such dividend or distribution in (iii) above, as the case may be,
                  by
                  multiplying the Conversion Price in effect immediately prior to
                  such
                  effective date or record date, as the case may be, by a fraction,
                  the
                  numerator of which shall be the number of outstanding Common Shares
                  on
                  such effective date or record date, as the case may be, before
                  giving
                  effect to such Common Share Reorganization and the denominator
                  of which
                  shall be the number of outstanding Common Shares after giving effect
                  to
                  such Common Share Reorganization including, in the case where securities
                  exchangeable for or convertible into Common Shares are distributed,
                  the
                  number of Common Shares that would have been outstanding had such
                  securities been exchanged for or converted into Common Shares.
                  Such
                  adjustment shall be made successively whenever any such effective
                  date or
                  record date shall occur; and any such issue of Common Shares by
                  way of
                  stock dividend or other distribution shall be deemed to have been
                  made on
                  the record date for the stock dividend or other distribution for
                  the
                  purpose of calculating the number of outstanding Common Shares
                  under this
                  Section 9.

              

      

    

     

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    
      
        	
              	(ii)	
                If
                  and whenever at any time while any portion of this Debenture remains
                  outstanding the Company shall fix a record date for the issuance
                  of rights
                  or warrants to its shareholders entitling the holders thereof to
                  subscribe
                  for or purchase Common Shares (or securities convertible into Common
                  Shares) at a price per share (or having a conversion price per
                  share) less
                  than the Conversion Price in effect on such record date (any such
                  of these
                  events being called a “Rights
                  Offering”),
                  the Conversion Price shall be adjusted immediately thereafter so
                  that it
                  shall equal the price per share at which the Common Shares are
                  issued
                  under the Rights Offering. 

              

      

    

     

    
      
        	
              	(iii)	
                If
                  and whenever at any time while any portion of this Debenture is
                  outstanding the Company distributes to all or substantially all
                  the
                  holders of its outstanding Common Shares of (i) shares of any class
                  other
                  than Common Shares, (ii) rights, options or warrants to acquire
                  Common
                  Shares or securities exchangeable for or convertible into Common
                  Shares or
                  property or other assets of the Company, (iii) evidence of indebtedness,
                  or (iv) any property or other assets, if such distribution does
                  not
                  constitute (a) a dividend paid in the ordinary course, (b) a Common
                  Share
                  Reorganization, or (c) a Rights Offering (any of such non-excluded
                  events
                  herein called a “Special
                  Distribution”),
                  the Conversion Price shall be adjusted effective immediately after
                  the
                  record date at which holders of Common Shares are determined for
                  purposes
                  of the Special Distribution to be a price determined by multiplying
                  the
                  Conversion Price in effect on such record date by a fraction, of
                  which the
                  numerator shall be the number of Common Shares outstanding on such
                  record
                  date multiplied by the Conversion Price on such record date, less
                  the fair
                  market value of such shares, rights, options, warrants, evidences
                  of
                  indebtedness or property or other assets issued or distributed
                  (as
                  determined conclusively by the auditors of the Company), and of
                  which the
                  denominator shall be the number of Common Shares outstanding on
                  such
                  record date multiplied by such Conversion Price; any Common Shares
                  owned
                  by or held for the account of the Company or any subsidiary thereof
                  shall
                  be deemed not to be outstanding for the purpose of any such
                  computation.

              

      

    

     

    
      
        	
              	(iv)	
                If
                  and whenever at any time while any portion of this Debenture is
                  outstanding there is a capital reorganization of the Company or
                  a
                  reclassification of the Common Shares or other change of the Common
                  Shares
                  (other than a Common Share Reorganization) or a consolidation or
                  an
                  amalgamation or merger of the Company with or into any other corporation
                  (other than a consolidation, amalgamation or merger which does
                  not result
                  in a reclassification of the outstanding Common Shares or a change
                  of the
                  Common Shares into other securities), or a transfer of all or
                  substantially all of the undertaking or assets of the Company to
                  another
                  corporation or other entity in which the holders of Common Shares
                  are
                  entitled to receive shares or other securities or property (any
                  of such
                  events being a “Capital
                  Reorganization”),
                  the Holder thereafter shall, upon converting this Debenture, be
                  entitled
                  to receive, and shall accept, in lieu of the number of Common Shares
                  to
                  which it was theretofore entitled upon such conversion, the kind
                  and
                  amount of shares and other securities or property which the Holder
                  would
                  have been entitled to receive as a result of such Capital Reorganization,
                  on the effective date thereof, the Holder had been the registered
                  holder
                  of the number of Common Shares to which it was theretofore entitled
                  upon
                  conversion.

              

      

    

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    
      
        	
              	(v)	
                There
                  will be no adjustment of the Conversion Price in respect of any
                  event
                  described in clause (i) (ii) or (iii) of this subsection 9(a) if
                  the
                  Holder is entitled to participate in such event on the same terms
                  mutatis
                  mutandis
                  as
                  if it had converted its Debenture prior to or on the applicable
                  record
                  date.

              

      

    

     

    
      
        	
              	(vi)	
                In
                  any case in which this subsection 9(a) shall require that an adjustment
                  shall become effective immediately after a record date for an event
                  referred to herein, the Company may defer, until the occurrence
                  of such
                  event, issuing to the Holder in the event this Debenture is converted
                  after such record date and before the occurrence of such event
                  the
                  additional Common Shares issuable upon such conversion by reason
                  of the
                  adjustment required by such event before giving effect to such
                  adjustment;
                  provided, however, that the Company shall deliver to the Holder
                  an
                  appropriate instrument evidencing the Holder’ right to receive such
                  additional Common Shares upon the occurrence of the event requiring
                  such
                  adjustment and the right to receive any distributions made on such
                  additional Common Shares declared in favour of holders of record
                  of Common
                  Shares on and after the Conversion Date or such later date as the
                  Holder
                  would, but for the provisions of this clause (vi), have become
                  the Holder
                  of record of such additional Common
                  Shares.

              

      

    

     

    
      
        	
              	(vii)	
                The
                  adjustments provided for in this subsection 9(a) are cumulative,
                  shall be
                  computed to the nearest one tenth of one cent and shall be made
                  successively whenever an event referred to therein shall occur,
                  provided,
                  that, notwithstanding any other provision of this subsection 9(a),
                  no
                  adjustment of the Conversion Price shall be required unless such
                  adjustment would require an increase or decrease of at least 1%
                  in the
                  Conversion Price then in effect; provided however, that any adjustments
                  which by reason of this clause (vii) are not required to be made
                  shall be
                  carried forward and taken into account in any subsequent
                  adjustment.

              

      

    

     

    
      
        	
              	(viii)	
                No
                  adjustment of the Conversion Price shall be made pursuant to this
                  subsection 9(a) in respect of the issue from time to time of Common
                  Shares
                  pursuant to this Debenture or pursuant to any stock option or stock
                  purchase plan(s) in force from time to time for officers, employees
                  or
                  consultants of the Company or shareholders of the Company who exercise
                  an
                  option to receive substantially equivalent dividends in Common
                  Shares in
                  lieu of receiving a cash dividend paid in the ordinary course,
                  and any
                  such issue shall be deemed not to be a Common Share
                  Reorganization.

              

      

    

     

    
      
        	
              	(ix)	
                In
                  the event of any question arising with respect to the adjustments
                  provided
                  in this subsection 9(a), such question shall be conclusively determined
                  by
                  a firm of chartered accountants acceptable to the Company and the
                  Holder.
                  Such accountants shall have access to all necessary records of
                  the Company
                  and such determination shall be binding upon the Company and the
                  Holder.

              

      

    

     

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

    
      	 	
              (b)

            	
              Notice
                of Adjustment of Conversion Price, etc..
                If there shall be any adjustment as provided in subsection 9(a) above,
                the
                Company shall forthwith cause written notice thereof to be sent
                to
                the Holder,
                which notice shall be accompanied by a certificate of the President
                of the
                Company setting forth in reasonable detail the basis of such
                adjustment.

            

    

     

    
      	
            	(c)	
              Notice
                of Certain Events.
                In the event that:

            

    

     

    
      
        	
              	(x)	
                the
                  Company shall declare on its Common Shares any dividend or make
                  any other
                  distribution on its Common
                  Shares;

              

      

    

     

    
      
        	
              	(xi)	
                there
                  shall be an amalgamation or merger of the Company with or into
                  any other
                  corporation or a sale, transfer or other disposition of all or
                  substantially all of the assets of the Company;
                  or

              

      

    

     

    
      
        	
              	(xii)	
                there
                  shall be a voluntary or involuntary dissolution, liquidation or
                  winding up
                  of the Company;

              

      

    

     

    then,
      and
      in each of such cases, the Company shall cause notice thereof to be given to
      the
      Holder at least 10 Business Days prior to the date on which the books of the
      Company shall close or a record date shall be taken for such dividend,
      distribution, stock split or combination or issue of rights or to vote upon
      such
      capital reorganization, reclassification, change, consolidation, merger or
      sale
      of properties and assets, as the case may be, and shall specify such record
      date
      or dates for the closing of the transfer books.

     

    10.    Representations
      and Warranties.
      The
      Company represents and warrants to the Holder as follows:

     

    
      	 	
              (a)

            	
              it
                has been continued and is validly subsisting as a corporation under
                the
                laws of Ontario, and has the power and authority to enter into and
                perform
                its obligations under this Debenture and to own its property and
                carry on
                its business as currently
                conducted;

            

    

     

    
      	 	
              (b)

            	
              the
                execution, delivery and performance of this Debenture has been duly
                authorized by all requisite corporate action; this Debenture and
                all
                instruments and agreements delivered pursuant hereto have been duly
                executed and delivered by the Company and constitute valid and binding
                obligations of the Company enforceable against the Company in accordance
                with their terms;

            

    

     

    
      	 	
              (c)

            	
              neither
                the execution nor delivery of this Debenture or any agreements or
                instruments delivered pursuant hereto, the consummation of the
                transactions herein and therein contemplated, nor compliance with
                the
                terms, conditions and provisions hereof or thereof conflicts with
                or will
                conflict with, or results or will result in any material breach of,
                or
                constitutes a default under any of the provisions of the constating
                documents or by-laws of the Company any law, rule or regulation having
                the
                force of law applicable to the Company, including applicable securities
                laws, rules, policies and regulations or any contract or agreement
                binding
                upon or to which the Company is a
                party;

            

    

     

    
      	 	
              (d)

            	
              no
                event has occurred which constitutes, or with notice or lapse of
                time or
                both, would constitute an Event of
                Default;

            

    

     

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    
      	 	
              (e)

            	
              the
                execution and delivery of this Debenture by the Company and the
                performance by the Company of its obligations hereunder have been
                duly
                authorized by all necessary corporate action; no consent, approval,
                order,
                authorization, licence, exemption or designation of or by any Official
                Body is required in connection with the execution, delivery and
                performance by the Company of its obligations under this Debenture
                and no
                registration, qualification, designation, declaration of filing with
                any
                Official Body is or was necessary to enable or empower the Company
                to
                enter into and to perform its obligations under this Debenture except
                such
                as have been made or obtained and are in full force and effect, unamended,
                on the Closing Date;

            

    

    

    
      	 	
              (f)

            	
              the
                Company is the sole and beneficial owner of all of the Charged Assets
                (except any leased assets) and, where applicable, are duly registered
                as
                the owner thereof, with a good and marketable title thereto, free
                and
                clear of all Encumbrances except for Permitted
                Encumbrances;

            

    

    

    
      	 	
              (g)

            	
              there
                are no actions, suits, grievances or proceedings threatened or taken
                before or by any Official Body or by any elected or appointed public
                official or private person, which challenges the validity or propriety
                of
                the transactions contemplated under this Debenture or any of the
                documents, instruments and agreements executed or delivered in connection
                therewith or related thereto which could be reasonably anticipated
                to have
                a material adverse effect on the business, operations, properties,
                assets,
                capitalization, financial condition or prospects of the
                Company;

            

    

    

    
      	 	
              (h)

            	
              the
                Company is not in default under any material applicable statute,
                rule,
                order, decree or regulation of any Official Body having jurisdiction
                over
                it or any of the Charged Assets;
                and

            

    

     

    
      	 	
              (i)

            	
              to
                the best of the knowledge of the Company, the Company has complied
                and is
                complying in all material respects with all federal, provincial and
                local
                laws, rules, regulations, notices, approvals, ordinances and orders
                applicable to its business, property, assets and
                operations.

            

    

     

    11.    Survival
      of Representations and Warranties.
      The
      representations and warranties herein set forth or contained in any certificates
      or documents delivered to the Holder shall survive the execution and delivery
      of
      this Debenture until all obligations of the Company to the Holder Party herein
      have been fully satisfied, which, for greater certainty, shall include, without
      limitation, the conversion of this Debenture pursuant to the terms
      hereof.

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    

    12.    Affirmative
      Covenants.
      The
      Company covenants and agrees with the Holder that, so long as this Debenture
      is
      outstanding and in force and except as otherwise permitted by the prior written
      consent of the Holder, it will:

     

    
      	 	
              (a)

            	
              do
                or cause to be done all things necessary to keep in full force and
                effect
                its corporate existence and all qualifications to carry on its business
                in
                each jurisdiction in which it owns property or carries on business
                from
                time to time;

            

    

     

    
      	 	
              (b)

            	
              comply
                with all applicable governmental laws, restrictions and regulations
                and
                orders;

            

    

     

    
      	 	
              (c)

            	
              pay
                or cause to be paid all taxes, government fees and dues levied, assessed
                or imposed upon it and its property or any part thereof, as and when
                the
                same become due and payable, unless any such taxes, fees, dues, levies,
                assessments or imposts are in good faith contested by it;
                

            

    

     

    
      	 	
              (d)

            	
              forthwith
                notify the Holder of the occurrence of any Event of Default or any
                event
                of which it is aware which with notice or lapse of time or both would
                constitute an Event of Default;

            

    

     

    
      	
            	(c)	
              it
                shall continue to make all required filings under the Securities
                Act
                (Alberta) to maintain its reporting issuer status in Alberta;
                and

            

    

     

    
      	
            	(d)	
              it
                shall duly and pay or cause to be paid to the Holder the Principal
                Amount
                and all other moneys payable on or pursuant to this Debenture on
                the
                dates, at the places and in the manner set forth herein.
                

            

    

     

    13.    Negative
      Covenants.
      The
      Company covenants and agrees with the Holder that, so long as this Debenture
      is
      outstanding and in force and except as otherwise permitted by the prior written
      consent of the Holder, it will not:

    

    
      	 	
              (a)

            	
              Encumbrances,
                etc.
                -
                Create or suffer to exist any Encumbrance to secure or provide for
                the
                payment of any Debt or any other obligation other than Permitted
                Encumbrances;

            

    

    

    
      	 	
              (b)

            	
              Mergers,
                etc.
                -
                Enter into any transaction (whether by way of reconstruction,
                reorganization, arrangement, consolidation, amalgamation, merger,
                joint
                venture, transfer, sale, lease or otherwise) whereby any material
                part of
                the Charged Assets would become the property of any Person other
                than the
                Company or whereby all or any material part of the undertaking, property
                and assets would become the property of any Person other than the
                Company
                or in the case of any amalgamation involving the Company would become
                the
                property of any other person other than the Company by virtue of
                such
                Person's direct or indirect ownership interest in the continuing
                Debtor
                resulting therefrom; and

            

    

    

    
      	
            	(c)	
              Sale
                of the Company
                -
                Enter into any transaction for the Sale of the
                Company.

            

    

     

     

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    14.  Grant
      of Mortgages, Charges and Security Interests

    

    14.1  Security

    

    As
      security for the due payment of the Principal Amount, interest thereon and
      all
      other indebtedness and liability from time to time payable hereunder and for
      the
      fulfillment of its obligations of the Company hereunder, the Company
      hereby:

    

    
      	 	
              (a)

            	
              mortgages
                and charges (subject to the exceptions as to leaseholds hereinafter
                contained) as and by way of a fixed and specific mortgage and charge
                to
                and in favour of the Holder, and grants to the Holder a security
                interest
                in, all real and immoveable property (including, by way of sub-lease)
                any
                leased premises now or hereafter owned or acquired by the Company
                and all
                buildings erections, improvements, fixtures and plants now or hereafter
                owned or acquired by the Holder (whether the same form part of the
                realty
                or not) and all appurtenances to any of the foregoing; for the purposes
                of
                this subsection 14.1(a), all references to "real and immoveable property"
                shall be read to include any estate or interest in or right with
                respect
                to real and immoveable property;

            

    

    

    
      	 	
              (b)

            	
              mortgages
                and charges to the Holder and grants to the Holder a security interest
                in,
                all its present and future equipment, and all fixtures, plant, machinery,
                tools and furniture now or hereafter owned or acquired by
                them;

            

    

    

    
      	 	
              (c)

            	
              mortgages
                and charges to and in favour of the Holder, and grants to the Holder
                a
                security interest in, all its present and future inventory, including,
                without limiting the generality of the foregoing, all raw materials,
                goods
                in process, finished goods and packaging material and goods acquired
                or
                held for sale or furnished or to be furnished under contracts of
                rental or
                service;

            

    

    

    
      	 	
              (d)

            	
              grants
                to the Holder a security interest in, all its present and future
                intangibles, including, without limiting the generality of the foregoing,
                all its present and future book debts, accounts and other amounts
                receivable, contract rights and choses in action of every kind or
                nature
                including insurance rights arising from or out of any insurance now
                or
                hereafter placed on or in respect of the assets referred to in subsections
                14.1(a), (b) or (c), goodwill, chattel paper, instruments of title,
                investments, money, securities and all Intellectual Property
                Rights;

            

    

    

    
      	 	
              (e)

            	
              charges
                in favour of the Holder as and by way of a floating charge, and grants
                to
                the Holder a security interest in, its business and undertaking and
                all of
                its property and assets, real and personal, moveable or immoveable,
                of
                whatsoever nature and kind, both present and future (other than property
                and assets hereby validly assigned or subjected to a specific mortgage,
                charge or security interest by this subsections 14.1(a), (b), (c)
                or (d)
                and subject to the exceptions hereinafter contained); and
                

            

    

     

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

     

    
      	 	
              (f)

            	
              assigns,
                mortgages and charges to and in favour of the Holder, and grants
                to the
                Holder a security interest in, the proceeds arising from any of the
                assets
                referred to in this Section 14.1;

            

    

    

    
      	 	
              (g)

            	
              grants
                to the Holder a security interest in the right, title and interest
                the
                Company has to the Intellectual Property
                Rights;

            

    

    

    all
      of
      which present and future property and assets of the Company referred to in
      the
      foregoing subparagraphs of this Section 14.1 are hereinafter collectively called
      the "Charged Assets".

    

    14.2    Notwithstanding
      the security interests granted pursuant to subsections 14.1(b) and 14.1(c),
      the
      Company shall have the right to sell any of the Charged Assets referred to
      therein in the ordinary course of business. 

    

    For
      avoidance of doubt, notwithstanding the security interests granted pursuant
      to
      subsections 14.1, the Company shall have the right to grant licences of its
      Intellectual Property Rights from time to time in the ordinary course of
      business.

    

    14.3    Location
      of the Charged Assets

    

    The
      Company hereby represents and warrants to the Holder that the Charged Assets
      are
      on the date hereof primarily situate or located at the locations set out in
      Schedule A. The Company shall notify the Holder of any other premises where
      the
      Charged Assets are located. 

    

    14.4    Exceptions
      to Charge

    

    The
      last
      day of any term reserved by any Lease, oral or written, or any Agreement
      therefore, now held or hereafter acquired by the Company, and whether falling
      within the general or particular description of the Charged Assets, is hereby
      and shall be excepted out of the mortgage, charge and security interest hereby
      or by any other instrument created but the Company shall stand possessed or
      the
      reversion of one day remaining in the Company in respect of any such term,
      for
      the time being demised, as aforesaid, upon trust to assign and dispose of the
      same as any purchase of such term shall direct. 

    

    15.    Remedies

    

    
      	 	
              (a)

            	
              Upon
                the occurrence and continuation of an Event of Default which has
                not been
                remedied, the Holder shall not be required to advance any portion
                of the
                Loan which has not then been advanced. Upon the occurrence and
                continuation of an Event of Default which has not been remedied,
                the
                Holder may proceed to realize upon the Security granted hereby and
                under
                the Security and to enforce its rights
                by:

            

    

    

    
      	
            	(i)	
              entry
                or taking into possession of all or any part of the Charged
                Assets;

            

    

     

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

     

    
      	 	
              (ii)

            	
              the
                appointment by instrument in writing of a receiver or receivers of
                the
                Charged Assets or any part thereof (which receiver or receivers may
                be any
                person or persons, whether an officer or officers or employee or
                employees
                of the Holder or not, and the Holder may remove any receive or receivers
                so appointed and appoint another or others in his or her
                stead);

            

    

    

    
      	 	 	
              (iii)

            	
              proceedings
                in any court of competent jurisdiction for the appointment of a receiver
                or receivers or for the sale of the Charged Assets or any part
                thereof;

            

    

    

    
      	 	
              (iv)

            	
              any
                other action, suit, remedy or proceeding authorized or permitted
                hereby or
                by law or by equity;

            

    

    

    
      	
            	(v)	
              collecting
                any proceeds arising in respect of the Charged
                Assets;

            

    

    

    
      	 	 	
              (vi)

            	
              collecting,
                realizing upon or selling or otherwise dealing with any accounts
                of the
                Company; or

            

    

    

    
      	 	
              (vii)

            	
              preparing
                for the disposition of the Charged Assets, whether on the premises
                of the
                Company or otherwise.

            

    

    

    
      	 	
              (b)

            	
              In
                addition, the Holder may file such proofs of claim and other documents
                as
                may be necessary or advisable in order to have its claim lodged in
                any
                bankruptcy, winding-up or other judicial proceedings relative to
                the
                Company. 

            

    

     

    16.    Events
      of Default and Remedies.
      

     

    
      
        	
              	(a)	
                Events
                  of Default.
                  Any one or more of the following events shall constitute an Event
                  of
                  Default hereunder:

              

      

    

     

    
      
        	
              	(i)	
                Default
                  in Principal -
                  If the Company fails to repay the Principal Amount then outstanding
                  on the
                  Maturity Date.

              

      

    

     

    
      
        	
              	(ii)	
                Default
                  hereunder
                  -
                  If the Company materially defaults in the performance or observance
                  of any
                  term, condition or covenant contained in this Debenture and such
                  default
                  continues for a period of 15 Business Days or more after written
                  notice
                  thereof has been delivered by the Holder to the
                  Company.

              

      

    

     

    
      
        	
              	(iii)	
                Winding-up,
                  etc.
                  -
                  If an order is made or an effective resolution passed for the winding-up,
                  liquidation or dissolution of the
                  Company.

              

      

    

     

    
      
        	
              	(iv)	
                Insolvency,
                  etc.
                  -
                  If the Company consents to or makes a general assignment for the
                  benefit
                  of creditors or makes a proposal under Bankruptcy
                  Act (Canada),
                  the Companies’
                  Creditors Arrangement Act (Canada)
                  or any other bankruptcy, insolvency or analogous laws, or is declared
                  bankrupt, or if a liquidator, trustee in bankruptcy, custodian
                  or receiver
                  and manager or other officer with similar powers is appointed of
                  the
                  Company or of its property or any part thereof which in the opinion
                  of the
                  Holder, acting reasonably, is a substantial part thereof and such
                  appointment is not being contested in good faith by the
                  Company.

              

      

    

     

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

     

    
      
        	
              	(v)	
                Encumbrancers
                  -
                  If an encumbrancer takes possession of the property of the Company
                  or any
                  part thereof which in the opinion of the Holder, acting reasonably,
                  is a
                  substantial part thereof, or if a distress or execution or any
                  similar
                  process is levied or enforced against such property and remains
                  unsatisfied for such period as would permit such property or such
                  part
                  thereof to be sold thereunder, provided that such possession or
                  process
                  has not been stayed and is not being contested in good faith by
                  the
                  Company.

              

      

    

     

    
      
        	
              	(vi)	
                If
                  the Common Shares of the Company are delisted from the NASDAQ BB
                  or if the
                  Company ceases to be a Reporting Issuer in the Province of Alberta
                  or
                  another Province in Canada acceptable to the
                  Holder.

              

      

    

     

    
      	 	
              (b)

            	
              Acceleration.
                Upon the occurrence of any one or more of the Events of Default,
                all
                indebtedness of the Company to the Holder hereunder shall, at the
                option
                of the Holder, immediately become due and payable without presentment,
                demand, protest or other notice of any kind, all of which are expressly
                waived by the Company, and all collateral and securities shall thereupon
                become enforceable by the Holder or its duly authorized
                agent.

            

    

     

    
      	
            	(c)	
              Remedies
                Cumulative.
                The rights and remedies of the Holder hereunder are cumulative and
                in
                addition to and not in substitution for any rights or remedies provided
                by
                law.

            

    

     

    17.    Further
      Assurances.
      The
      Company shall from time to time forthwith on the Holder’ request do, make and
      execute all such further assignments, documents, acts, matters and things as
      may
      be required by the Holder with respect to this Debenture or any part hereof
      or
      thereof or as may be required to give effect to these presents.

     

    18.    Dealings
      by the Holder.
      the
      Holder may grant extensions of time and other indulgences, take and give up
      securities, accept compositions, grant releases and discharges and otherwise
      deal with the Company, debtors of the Company, sureties and others and with
      the
      Security and other securities as the Holder may see fit without prejudice to
      the
      liability of the Company hereunder or the Holder’ right to hold and enforce the
      Security.

     

    19.    Notices.
      Any
      notice or communication to be given hereunder may be effectively given by
      delivering the same at the addresses hereinafter set forth or by sending the
      same by facsimile or prepaid registered mail to the parties at such
      addresses.  Any notice so mailed shall be deemed to have been received on
      the fifth Business Day next following the mailing thereof provided the postal
      service is in operation during such time.  Any facsimile notice shall be
      deemed to have been received on the Business Day next following the date of
      transmission.  The mailing and facsimile addresses of the parties for the
      purposes hereof shall respectively be:

     

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

     

    if
      the
      Holder: 

     

    <Name>

    <Address>

     

    Facsimile:

     

    if
      to the
      Company:

    
       

    

    Astris
      Energi Inc.

    Unit
      6 -
      2175 Dunwin Dr.

    Mississauga,
      Ontario

    L5L
      1X2

     

    Attention: Anthony
      J. Durkacz, Vice-President of Finance

    Facsimile: (905)
      608-8222

     

    Either
      party may from time to time notify the other party hereto, in accordance with
      the provisions hereof, of any change of address which thereafter, until changed
      by like notice, shall be the address of such party for all purposes of this
      Agreement.

     

    20.    Successors
      and Assigns.
      This
      Debenture shall be binding upon and shall enure to the benefit of the Company
      and the Holder and their respective successors and assigns, provided that the
      Company shall not assign any of its rights or obligations hereunder without
      the
      prior written consent of the Holder.

     

    21.    Governing
      Law.
      This
      Debenture and all other documents delivered to the Holder hereunder shall be
      construed and interpreted in accordance with the laws of Ontario and the laws
      of
      Canada applicable therein.

     

    22.    Currency.
      All
      dollar amounts herein are expressed in Canadian dollars.

     

    23.    Headings.
      The
      headings of the sections of this Debenture are inserted for convenience only
      and
      shall
      not be deemed to constitute a part hereof.

     

    24.    Entire
      Agreement.
      This
      Debenture constitutes the entire agreement and supercedes all other prior
agreements
      and
      undertakings, both written and oral, among the parties with respect of the
      subject matter hereof.

     

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

     

    DATED
      as
      of
      March 24th, 2005.

     

    ASTRIS
      ENERGI INC.

     

    Per: 
      /s/
      Anthony J. Durkacz

    
      
        

      

    

    Name:
      Anthony J. Durkacz

    Title:
      Vice-President of Finance

    I
      have
      the authority to bind the Corporation.

     

    
      
         

      

        -17-EMPLOYMENT
      AGREEMENT

     

    AGREEMENT,
      made and entered into as of January 31, 2006 by and between GVI Security
      Solutions Inc., a Delaware corporation (the “Company”), and Steven E. Walin (the
“Executive”).

     

    WITNESSETH:

     

    WHEREAS,
      the Company desires to employ the Executive and to enter into an agreement
      embodying the terms of such employment (this “Agreement”) and the Executive
      desires to enter into this Agreement and to accept such employment, subject
      to
      the terms and provisions of this Agreement;

     

    NOW,
      THEREFORE, in consideration of the premises and mutual covenants contained
      herein and for other good and valuable consideration, the receipt of which
      is
      mutually acknowledged, the Company and the Executive (individually a “Party” and
      together the “Parties”) agree as follows:

     

    1.  Definitions.

     

    (a)  “Affiliate”
      of a specified person or entity shall mean a person or entity that directly
      or
      indirectly controls, is controlled by, or is under common control with, the
      person or entity specified.

     

    (b)  “Annual
      Bonus” shall have the meaning ascribed to such term in Section 5(b) below.

     

    (c)  “Base
      Salary” shall mean the annualized salary provided for in Section 4
      below.

     

    (d)  “Board”
      shall mean the Board of Directors of the Company.

     

    (e)  “Cause”
      shall mean: 

     

    (i)  a
      material breach by the Executive of any provision of this Agreement, including
      but not limited to a breach of Section 3(a) below, which, if curable, is not
      substantially cured within 30 days after the Executive’s receipt of written
      notice from the Company; 

     

    (ii)  any
      conduct, action or behavior by the Executive that has or may reasonably be
      expected to have a material adverse effect on the reputation of the Company
      (including, without limitation, the commission of any felony or any act
      involving moral turpitude or dishonesty, whether or not in connection with
      the
      Executive’s employment hereunder); or

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii)  commission
      of any act by the Executive of gross negligence, willful malfeasance, reckless
      nonfeasance or malfeasance or any willful violation of law, in performance
      of
      his duties with the Company.

     

    Anything
      herein to the contrary notwithstanding, the Company shall not be entitled to
      terminate the Executive’s employment for Cause unless the Company gives the
      Executive written notice of the event constituting “Cause” within 60 days after
      the Company becomes aware of such event and, if curable, the Executive fails
      to
      cure such event within 30 days after receipt of such notice.

     

    (f)  “Change
      in Control” shall mean any of the following:

     

    (i)  any
      “person” (as such term is used in Sections 3(a)(9) and 13(d) of the Securities
      Exchange Act of 1934, as amended), but excluding a person who owns more than
      5%
      of the outstanding shares of the Company as of the Commencement Date, becomes
      a
“beneficial owner” (as such term is used in Rule 13d-3 promulgated under that
      Act), of more than 50% of the Voting Stock of the Company;

     

    (ii)  the
      majority of the members of the Board consists of individuals other than
      Incumbent Directors, which term means the members of the Board as of the
      Commencement Date; provided that any individual becoming a director subsequent
      to such date whose election or nomination for election as a director was
      supported by a majority of the directors who were Incumbent Directors at the
      time of such election or nomination shall be an Incumbent Director;
      or

     

    (iii)  all
      or
      substantially all of the assets of the Company are disposed of pursuant to
      a
      merger, consolidation or other transaction (unless the stockholders of the
      Company immediately prior to such merger, consolidation or other transaction
      beneficially own, directly or indirectly, in substantially the same proportion
      as they owned the Voting Stock of the Company, all of the Voting Stock or other
      ownership interests of the entity or entities, if any, that succeed to the
      business of the Company).

     

    For
      purposes of this Change in Control definition, “Voting Stock” shall mean the
      capital stock of any class or classes having general voting power, in the
      absence of specified contingencies, to elect the directors of the Company.
      

     

    (g)  “Closing
      Price” shall mean the
      closing price for the common stock of the Company as officially reported on
      the
      relevant date (or if there were no sales on such date, the next preceding date
      on which the closing price was recorded) by the principal national securities
      exchange (including, for purposes hereof, the Nasdaq Stock Market) on which
      the
      common stock of the Company is listed or admitted to trading or, if the common
      stock is not listed or admitted to trading on any national securities exchange,
      the closing price as furnished by the National Association of Securities
      Dealers, Inc. through Nasdaq or a similar organization if Nasdaq is no longer
      reporting such information. If, on any such date the common stock is not listed
      or admitted to trading on any United States national securities exchange and
      is
      not quoted by Nasdaq or any similar organization, the fair value of a share
      of
      common stock of the Company on such date, as determined in good faith by the
      Board.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (h)  “Commencement
      Date” shall mean March 6, 2006.

     

    (i)  “Date
      of
      Termination” shall mean:

     

    (i)  if
      the
      Executive’s employment is terminated by the Company, the date the Company
      informs the Executive that his employment is so terminated;

     

    (ii)  if
      the
      Executive voluntarily resigns his employment, the date stated as his Date of
      Termination in a written notice to the Company (provided, that the Company
      may
      accelerate the Date of Termination to an earlier date by providing the Executive
      with notice of such action, or, alternatively, the Company may place the
      Executive on paid leave during such period);

     

    (iii)  if
      the
      Executive’s employment is terminated by reason of death, the date of death;
      or

     

    (iv)  if
      the
      Executive resigns his employment for Good Reason, 30 days after receipt by
      the
      Company of timely written notice from the Executive in accordance with Section
      1(k) below unless the Company cures the event or events giving rise to Good
      Reason within 30 days after receipt of such written notice.

     

    (j)  “Disability”
      shall mean the Executive’s inability, due to physical or mental incapacity, to
      substantially perform his duties and responsibilities for a period of 90
      consecutive days as determined by a medical doctor selected by the Company
      and
      reasonably acceptable to the Executive.

     

    (k)  “Good
      Reason” shall mean the occurrence of any of the following without the
      Executive’s consent: 

     

    (i)  a
      material diminution in the Executive’s authority, duties or responsibilities as
      normally associated with the position of Chief Executive Officer in a company
      the size and nature of the Company;

     

    (ii)  a
      reduction in the Executive’s Base Salary or bonus opportunity, or any failure by
      the Company to grant the Initial Option or the Second Option in accordance
      with
      Section 6(a) and (b) below, respectively;

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (iii)  a
      material breach by the Company of any provision of this Agreement which, if
      curable, is not substantively cured within 30 days after the Company’s receipt
      of written notice from the Executive;

     

    (iv)  a
      change
      without the consent of the Executive, in the location of employment to greater
      than 50 miles of the Company’s Florida office;

     

    (v)  a
      change
      in reporting structure so that the Executive reports to someone other than
      the
      Chairman of the Board or the Board; or

     

    (vi)  the
      failure by the Company to nominate or renominate the Executive as a Director,
      or
      the removal by the Company of the Executive as Chief Executive Officer of the
      Company.

     

    Anything
      herein to the contrary notwithstanding, the Executive shall not be entitled
      to
      resign for Good Reason unless the Executive gives the Company written notice
      of
      the event constituting “Good Reason” within 60 days after the Executive becomes
      aware of such event and, if curable, the Company fails to cure such event within
      30 days after receipt of such notice.

     

    (l)  “Initial
      Option” shall have the meaning ascribed to such term in Section 6 (a)
      below.

     

    (m)  “Second
      Option” shall have the meaning ascribed to such term in Section 6 (b)
      below.

     

    (n)  “Signing
      Bonus” shall have the meaning ascribed to such term in Section 5(b)
      below.

     

    (o)  “Term”
      shall have the meaning ascribed to such term in Section 2 below.

     

    2.  Term
      of Employment.
      

     

    The
      term
      of the Executive’s employment hereunder shall begin on the Commencement Date and
      end at the close of business on the day before the third anniversary of the
      Commencement Date (the “Term”). Within 90 days of the end of the Term, the
      Company shall notify the Executive in writing whether or not it intends to
      negotiate a new employment agreement with him. Notwithstanding the foregoing,
      the Term shall end on the date on which the Executive’s employment is terminated
      by either Party in accordance with the provisions herein. If the Executive’s
      employment with the Company continues after the end of the Term, the Executive’s
      employment shall be on an “at will” basis and his salary, benefits and annual
      bonus opportunity during such continued employment shall not be less than his
      salary, benefits and annual bonus opportunity at the expiration of the
      Term.

     

    3.  Position;
      Duties and Responsibilities.
      

     

    (a)  During
      the Term, the Executive shall be employed as the Chief Executive Officer of
      the
      Company and shall be responsible for the general management of the affairs
      of
      the Company and shall perform such other duties and responsibilities as
      reasonably determined by the Chairman of the Board consistent with the duties
      and responsibilities normally associated with such positions in a company the
      size and nature of the Company. It is also the intention of the Parties that
      the
      Executive shall be nominated by the Company for election as a member of the
      Board. The Executive, in carrying out his duties under this Agreement, shall
      report to the Chairman of the Board. Subject to the approval of the Board,
      the
      Executive shall be responsible for hiring the senior managers of the Company,
      including, but not limited to, a Chief Financial Officer, Chief Operating
      Officer and Vice President of Sales, and shall recommend appropriate
      compensation packages for such senior management to the Board.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (b)  
      The
      Executive agrees to devote all of his business time, energies, skills, efforts
      and attention to his duties hereunder, and will not, without the prior written
      consent of the Company, render any material services to any other business
      concern. The Executive will use his best efforts and abilities faithfully and
      diligently to promote the Company's business interests.

     

    (c)  Anything
      herein to the contrary notwithstanding, nothing shall preclude the Executive
      from (i) subject to the reasonable approval of the Board, serving on the boards
      of directors of trade associations and/or charitable organizations, (ii)
      engaging in charitable activities and community affairs and (iii) managing
      his
      personal investments and affairs, provided that the activities described in
      the
      preceding clauses (i) through (iii) do not interfere with the proper performance
      of his duties and responsibilities for the Company.

     

    4.  Base
      Salary.

     

    During
      the Term, the Executive shall be paid an annualized Base Salary of $375,000,
      payable in accordance with the regular payroll practices of the Company. During
      the Term, the Base Salary may be increased, but not decreased, from time to
      time
      by the Board. The Executive shall not be entitled to any compensation for
      service as a member of the Board or for service as an officer or member of
      any
      board of directors of any Affiliate. 

     

    5.  Bonuses.

     

    (a)  Signing
      Bonus.
      The
      Executive shall be entitled to a signing bonus (the “Signing Bonus”) of
      $100,000, $50,000 of which shall be payable to the Executive on the Commencement
      Date and $50,000 shall be payable on July 1, 2006.

     

    (b)  Annual
      Incentive Award.
      During
      the Term, the Executive shall be eligible to receive an annual incentive award
      (“Annual Bonus”) of up to 50% of Base Salary based on the Executive’s
      achievement of annual performance and other targets approved by the Board.
      The
      amount and payment of any such Annual Bonus shall be determined in accordance
      with the Company’s practices for awarding annual incentive awards to senior
      executives. Notwithstanding the foregoing, the Executive shall be entitled
      to a
      guaranteed Annual Bonus with respect to the first nine months of the Term equal
      to 50% of Base Salary for such period. Any Annual Bonus shall be payable when
      bonuses for the applicable performance period are paid to other senior
      executives of the Company; provided, however, the guaranteed Annual Bonus with
      respect to the first nine months of the Term shall be payable quarterly.
      Notwithstanding the foregoing, the Board, in its sole discretion, may provide
      the Executive an Annual Bonus greater than 50% of Base Salary with respect
      to
      any year. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    6.  Stock
      Option Grants.

     

    (a)  Initial
      Stock Option Grant.
      The
      Company shall grant the Executive on the Commencement Date a 10-year option
      to
      purchase in the aggregate 3,000,000 shares of the Company’s common stock (the
“Initial Option”). The exercise price per share with respect to 1,000,000 shares
      of the Initial Option (“Traunch I Option Shares”) shall be equal to the Closing
      Price of a share of the Company’s common stock on the day before the
      Commencement Date. The exercise price per share with respect to 1,000,000 shares
      of the Initial Option (“Traunch II Option Shares”) shall be equal to the greater
      of (i) the Closing Price of a share of the Company’s common stock on the day
      before the Commencement Date or (ii) $.52. The exercise price per share with
      respect to the final 1,000,000 shares of the Initial Option (“Traunch III Option
      Shares”) shall be equal to the greater of (iii) the Closing Price of a share of
      the Company’s common stock on the day before the Commencement Date or (iv) $.80
      One hundred percent of the Traunch I Option Shares and fifty percent of each
      of
      the Traunch II Option Shares and the Traunch III Option Shares shall be
      immediately exercisable and an additional 25% of the Traunch II Option Shares
      and the Traunch III Option Shares shall become exercisable on each of the first
      and second anniversary of the Commencement Date, provided the Executive is
      employed by the Company on such date.

     

    (b)  Second
      Stock Option Grant.
      Upon
      the closing of the Company’s first capital raise after the Commencement Date,
      the Company shall grant the Executive a 10-year option to purchase in the
      aggregate that number of shares of the Company’s common stock equal to 5% of the
      number of shares of common stock of the Company (or the common stock underlying
      convertible securities) sold by the Company pursuant to such offering (the
      “Second Option”). The exercise price per share with respect to the shares of the
      Second Option shall be equal to the Closing Price of the Company’s common stock
      on the day before (i) the Commencement Date or (ii) the grant of the Second
      Option, whichever is greater. The Executive’s right to be granted the Second
      Option under this Section 6(b) shall terminate if the Company has not closed
      on
      a capital raise before the second anniversary of the Commencement Date. Fifty
      percent of the shares of the Second Option shall be immediately exercisable
      and
      an additional 25% of the Second Option shall become exercisable on each of
      the
      first and second anniversary of the grant of the Second Option, provided the
      Executive is employed by the Company on such date. 

     

    (c)  Other
      Conditions.
      The
      Executive shall be subject to the equity ownership, retention and other
      requirements applicable to senior executives of the Company. Except as otherwise
      expressly provided herein, the Initial Option and the Second Option shall be
      governed by the applicable plan and option agreement. During the Term, the
      Board
      may, in its sole discretion, grant the Executive additional options to acquire
      the Company’s common stock. 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    7.  Employee
      Benefit Programs.
      

     

    During
      the Term, the Executive shall be entitled to participate in all employee savings
      and welfare benefit plans and programs made available to the Company’s
      senior-level executives on a basis no less favorable than provided to other
      similarly-situated executives, as such plans or programs may be in effect from
      time to time, includ-ing, without limitation, savings and other retire-ment
      plans or programs, medical, dental, hospitalization, short-term and long-term
      disability and life insurance plans, accidental death and dismemberment
      protection, travel accident insurance, and any other pension or retire-ment
      plans or programs and any other employee welfare benefit plans or programs
      that
      may be sponsored by the Company from time to time. 

     

    8.       Reimbursement
      of Business
      and Other Expenses; Perquisites; Vacations. 

     

    (a)  During
      the Term, the Executive is authorized to incur reasonable expenses in carrying
      out his duties and responsibilities under this Agreement, including but not
      limited to, reasonable travel and living expenses incurred by the Executive
      while the Company’s executive offices are located in Dallas, and the Company
      shall promptly reimburse him for all business and entertainment expenses
      incurred in connection with carrying out the business of the Company, subject
      to
      documentation in accordance with the Company’s policy. In addition, the Company
      will reimburse the Executive for his legal and other professional fees incurred
      in negotiating this Agreement up to a maximum of $10,000.

     

    (b)  The
      Executive shall be entitled to the perquisites provided to other senior-level
      executives. The Executive shall also be entitled to a car allowance of $1,500
      per month. 

     

    (c)  The
      Executive shall be entitled to four weeks paid vacation per year.

     

    9.  Termination
      of Employment.

     

    (a)  Termination
      Without Cause by the Company or Resignation for Good Reason by the Executive
      prior to a Change in Control.
      In the
      event, prior to a Change in Control, the Executive’s employment during the Term
      is terminated without Cause by the Company or the Executive resigns for Good
      Reason, the Executive shall be entitled to:

     

    (i)  Base
      Salary through the Date of Termination;

     

    (ii)  any
      unpaid Annual Bonus earned with respect to any fiscal year preceding the Date
      of
      Termination and any unpaid portion of the Signing Bonus;

     

    (iii)  a
      pro
      rated Annual Bonus for the fiscal year in which the Date of Termination occurs
      (determined by multiplying the amount the Executive would have received had
      employment continued through the end of such fiscal year by a fraction, the
      numerator of which is the number of days during such fiscal year that the
      Executive is employed by the Company and the denominator of which is 365),
      payable when bonuses for such fiscal year are paid to other Company
      executives;

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (iv)  payment
      of Base Salary as salary continuation and, to the extent permitted under the
      terms of the relevant plans and arrangements, all welfare benefits described
      in
      Paragraph 7 for a period of 12 months; provided, however, if the terms of the
      Company’s group medical plan does not permit the continued coverage of the
      Executive in the plan after his termination of employment, the Company shall
      pay
      for his premiums for continuing coverage under COBRA; provided, further, the
      obligation of the Company to provide welfare benefits under this clause (iv)
      (including the obligation to pay COBRA premiums) shall terminate upon the
      Executive becoming eligible for welfare benefits from another
      employer;

     

    (v)  with
      respect to each of the Initial Option and the Second Option, provided at least
      six months has expired since the date on which shares subject to the applicable
      option last became exercisable (the “Previous Scheduled Date”), a pro rated
      portion of the shares that would become exercisable on the next scheduled date
      for shares to become exercisable (the “Next Scheduled Date”) shall become
      immediately exercisable (determined by multiplying the number of shares subject
      to the option that would have become exercisable had employment continued
      through the Next Scheduled Date by a fraction, the numerator of which is the
      number of days between the Previous Scheduled Date and the Date of Termination
      and the denominator of which is 365; provide, further, that if the termination
      occurs after the first anniversary of the Commencement Date, 100% of the Initial
      Option and the Second Option shall become immediately exercisable; 

     

    (vi)  any
      amounts earned, accrued or owing to the Executive but not yet paid under Section
      8 above, including accrued vacation; and 

     

    (vii)  except
      as
      otherwise provided in Section 9(e) below, any additional payment and benefit
      in
      accordance with the applicable plans and programs of the Company.

     

    (b)  Termination
      upon Death or Disability.
      In the
      event the Executive’s employment during the Term is terminated upon death or
      Disability, the Executive (or his estate or legal representative, as the case
      may be) shall be entitled to:

     

    (i)  Base
      Salary through the Date of Termination;

     

    (ii)  any
      unpaid Annual Bonus earned with respect to any fiscal year preceding the Date
      of
      Termination and any unpaid portion of the Signing Bonus;

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (iii)  a
      pro
      rated Annual Bonus for the fiscal year in which the Date of Termination occurs
      (determined by multiplying the amount the Executive would have received had
      employment continued through the end of such fiscal year by a fraction, the
      numerator of which is the number of days during such fiscal year that the
      Executive is employed by the Company and the denominator of which is 365),
      payable when bonuses for such fiscal year are paid to other Company
      executives;

     

    (iv)  any
      amounts earned, accrued or owing to the Executive but not yet paid under Section
      8 above, including accrued vacation; and 

     

    (v)  any
      additional payment and benefit in accordance with applicable plans or programs
      of the Company. 

     

    (c)  Termination
      by the Company for Cause or a Voluntary Resignation by the
      Executive.
      If,
      during the Term, the Company terminates the Executive’s employment for Cause or
      the Executive voluntarily resigns, the Executive shall be entitled
      to:

     

    (i)  Base
      Salary through the Date of Termination;

     

    (ii)  any
      amounts earned, accrued or owing to the Executive but not yet paid under Section
      8 above, including accrued vacation; and 

     

    (iii)  any
      additional payment and benefit in accordance with the applicable plans or
      programs of the Company. 

     

    (d)  Termination
      Without Cause by the Company or Resignation for Good Reason by the Executive
      on
      or after a Change in Control.
      If,
      during the Term, the Executive’s employment is terminated on or within 12 months
      after a Change in Control without Cause by the Company or the Executive resigns
      for Good Reason, the Executive shall be entitled to:

    
(i)  Base
      Salary through the Date of Termination;

     

    (ii)  any
      unpaid Annual Bonus earned with respect to any fiscal year preceding the Date
      of
      Termination and any unpaid portion of the Signing Bonus;

     

    (iii)  a
      pro
      rated Annual Bonus for the fiscal year in which the Date of Termination occurs
      (determined by multiplying one-half of the Executive Base Salary by a fraction,
      the numerator of which is the number of days during such fiscal year that the
      Executive is employed by the Company and the denominator of which is
      365);

     

    (iv)  a
      payment
      of 200% Base Salary and to the extent permitted under the terms of the relevant
      plans and arrangements, all welfare benefits described in Paragraph 7 for a
      period of 24 months; provided, however, if the terms of the Company’s group
      medical plan does not permit the continued coverage of the Executive in the
      plan
      after his termination of employment, the Company shall pay for his premiums
      for
      continuing coverage under COBRA; provided, further, the obligation of the
      Company to provide welfare benefits under this clause (iv) (including the
      obligation to pay COBRA premiums) shall terminate upon the Executive becoming
      eligible for welfare benefits from another employer;

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (v)  all
      of
      the shares subject to the Initial Option and the Second Option shall become
      immediately exercisable;

     

    (vi)  any
      amounts earned, accrued or owing to the Executive but not yet paid under Section
      8 above, including accrued vacation; and

     

    (vii)  except
      as
      otherwise provided in Section 9(e) below, any additional payment and benefit
      in
      accordance with the applicable plans and programs of the Company.

     

    Subject
      to the provisions of Section 9(h) below, the payments described in clauses
      (i),
      (ii) and (iii) of this Section 9(d) shall be payable to the Executive within
      30
      days of the Date of Termination.

     

    (e)  Exclusivity
      of Benefits; Release of Claims.
      Any
      payments provided pursuant to Section 9(a) or (d) above shall be in lieu of
      any
      salary continuation arrangements under any other severance program of the
      Company. Notwithstanding anything herein to the contrary, in order to be
      entitled to the payments, rights and other entitlements in Section 9(a) or
      (d)
      above, the Executive shall be required to execute and deliver a general release
      of claims against the Company in the form supplied by the Company and not revoke
      such release within the applicable revocation period. 

     

    (f)  Nature
      of Payments.
      Any
      amounts due under this Section 9 are in the nature of severance payments
      considered to be reasonable by the Company and are not in the nature of a
      penalty.

     

    (g)  Resignation.
      Notwithstanding any other provision of this Agreement, upon the termination
      of
      the Executive’s employment for any reason, unless otherwise requested by the
      Board, he shall immediately resign from the Board, from all boards of directors
      of any Affiliate of the Company of which he may be a member, and as a trustee
      of, or fiduciary to, any employee benefit plans of the Company or any Affiliate.
      The Executive hereby agrees to execute any and all documentation of such
      resignations upon request by the Company, but he shall be treated for all
      purposes as having so resigned upon termination of his employment, regardless
      of
      when or whether he executes any such documentation.

     

    (h)  This
      Agreement is intended to comply with Section 409A of the Internal Revenue Code
      of 1986, as amended (the “Code”). Notwithstanding any provision herein to the
      contrary, this Agreement shall be interpreted, operated and administered
      consistent with this intent. In that regard, any payment in connection with
      the
      Executive’s termination of employment shall not be made earlier than six (6)
      months after the Date of Termination to the extent required by Code Section
      409A(a)(2)(B)(i).

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    10.  Confidentiality;
      Assignment of Rights.

     

    (a)  During
      the Term and thereafter, other than in the ordinary course of performing his
      duties for the Company or as required in connection with providing any
      cooperation to the Company pursuant to Section 13 below, the Executive agrees
      that he shall not disclose to anyone or make use of any trade secret or
      proprietary or confidential information of the Company or any Affiliate of
      the
      Company, including such trade secret or proprietary or confidential information
      of any customer or other entity to which the Company owes an obligation not
      to
      disclose such information, which he acquires during the course of his
      employment, including, but not limited to, records kept in the ordinary course
      of business, except when required to do so by a court of law, by any
      governmental agency having supervisory authority over the business of the
      Company or by any administrative or legislative body (including a committee
      thereof) with apparent or actual jurisdiction to order him to divulge, disclose
      or make accessible such information. In the event the Executive is requested
      to
      disclose information as contemplated in the preceding sentence, the Executive
      agrees, unless otherwise prohibited by law, to give the Company prompt written
      notice of any request for disclosure in advance of the Executive making such
      disclosure in order to permit the Company a reasonable opportunity to challenge
      such disclosure. The foregoing shall not apply to information that (i) was
      known
      to the public prior to its disclosure to the Executive; or (ii) becomes known
      to
      the public subsequent to disclosure to the Executive through no wrongful act
      of
      the Executive or any representative of the Executive.

     

    (b)  The
      Executive hereby sells, assigns and transfers to the Company all of his right,
      title and interest in and to all inventions, discoveries, improvements and
      copyrightable subject matter (the “rights”) which during the course of his
      employment are made or conceived by him, alone or with others, and which are
      within or arise out of any general field of the Company’s business or arise out
      of any work he performs, or information he receives regarding the business
      of
      the Company, while employed by the Company. The Executive shall fully disclose
      to the Company as promptly as available all information known or possessed
      by
      him concerning the rights referred to in the preceding sentence, and upon
      request by the Company and without any further remuneration in any form to
      him
      by the Company, but at the expense of the Company, execute all applications
      for
      patents and for copyright registration, assignments thereof and other
      instruments and do all things which the Company may deem necessary to vest
      and
      maintain in it the entire right, title and interest in and to all such
      rights.

     

    (c)  Except
      as
      otherwise may be required by law, the Executive agrees that at the time of
      the
      termination of employment, whether at the instance of the Executive or the
      Company, and regardless of the reasons therefore, or at any other time requested
      by the Company, he will deliver to the Company, and not keep or deliver to
      anyone else, any and all notes, files, memoranda, papers and, in general, any
      and all physical matter and computer files containing information, including
      any
      and all documents relating to the conduct of the business of the Company or
      any
      of its Affiliates which are in his possession or control, except for (i) any
      documents for which the Company has given written consent to removal at the
      time
      of termination of the Executive’s employment and (ii) any information the
      Executive reasonably believes may be necessary for his tax
      purposes.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    11.  Non-Competition;
      Non-Solicitation.

     

    (a)  In
      consideration of any severance or change in control payments the Executive
      may
      receive pursuant to this Agreement, during the Term and for 12 months following
      the termination of the Executive’s employment with the Company or the end of the
      originally scheduled Term, whichever occurs first, and whether or not the
      Executive is entitled to severance or change in control payments, the Executive
      agrees that he shall not, other than in the ordinary course of performing his
      duties hereunder or as agreed by the Company in writing, engage in a
“Competitive Business,” directly or indirectly, as an individual, partner,
      shareholder, director, officer, principal, agent, employee, trustee, consultant,
      or in any relationship or capacity, in any geographic location in which the
      Company or any of its Affiliates is engaged in business. The Executive shall
      not
      be deemed to be in violation of this Section 11(a) by reason of the fact that
      he
      owns or acquires, solely as an investment, up to two percent (2%) of the
      outstanding equity securities (measured by value) of any entity. Notwithstanding
      the foregoing, the provisions of this Section 11(a) shall not extend beyond
      the
      end of the originally scheduled Term. With respect to an entity which is engaged
      in both a Competitive Business and a non-Competitive Business, the Executive
      may
      provide services to the non-Competitive Business provided that the Competitive
      Business is not the principal or predominant business of such entity and the
      Executive does not render any services or advice, directly or indirectly, to
      the
      Competitive Business. Notwithstanding the foregoing, if, following the
      expiration of the Term, a Change of Control occurs and the Executive’s “at will”
employment with the Company is thereafter terminated by the Company without
      Cause, the provisions of this Section 11(a) shall cease to be effective.

     

    “Competitive
      Business” shall mean a business that the Company or any of its Affiliates is
      engaged in or intending to enter at the time of the alleged violation.

     

    (b)  The
      Executive agrees that during the Term and for a period of 12 months following
      the termination of the Executive’s employment with the Company, he will not,
      without the prior written consent of the Company, directly or indirectly, hire
      any employee or independent contractor of the Company or any of its Affiliates,
      or knowingly solicit or encourage any such employee or independent contractor
      to
      leave the employ of the Company or its Affiliates, as the case may be.

     

    (c)  The
      Executive agrees that during the Term and for a period of 12 months following
      the termination of the Executive’s employment with the Company, he will not,
      without the prior written consent of the Company, knowingly solicit or encourage
      any customer or supplier of the Company or any of its Affiliates to reduce
      or
      cease its business with the Company or any such Affiliate or otherwise knowingly
      interfere with the relationship of the Company or any Affiliate with its
      customers or suppliers. Notwithstanding the foregoing, if, following the
      expiration of the Term, a Change in Control occurs and the Executive’s “at will”
employment with the Company is thereafter terminated by the Company without
      Cause, or Executive resigns for Good Reasons, the provisions of this Section
      11(c) shall be effective only with respect to the four largest customers of
      the
      Company (measured by Company revenues) at the time of the termination of
      employment.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    12.  Injunctive
      and Other Relief.

     

    The
      Executive expressly agrees and acknowledges any breach or threatened breach
      of
      any obligation under Section 10, 11 or 14 hereof will cause the Company
      irreparable harm for which there is no adequate remedy at law, and as a result
      of this the Company shall be entitled to the issuance by a court of competent
      jurisdiction of an injunction, restraining order or other equitable relief
      in
      favor of itself, without the necessity of posting a bond, restraining the
      Executive from committing or continuing to commit any such violation. If the
      Company defers or withholds payment of any amount otherwise payable under this
      Agreement on the basis of an asserted violation of any provision of Section
      10,
      11 or 14, and it is subsequently finally determined that the Executive did
      not
      commit such violation, the Company shall promptly pay all such unpaid amounts
      to
      the Executive from the date such payments should have been made under this
      Agreement until the date they are actually paid, together with interest at
      the
      prime rate set by the Citibank.

     

    13.  Cooperation.

     

    Following
      the Date of Termination, upon reasonable request by the Company, the Executive
      shall cooperate with the Company with respect to any litigation or other dispute
      relating to any matter in which he was involved or had knowledge during his
      employment with the Company. The Company shall reimburse the Executive for
      all
      reasonable out-of-pocket costs, such as travel, hotel and meal expenses,
      incurred by the Executive in providing any cooperation pursuant to this Section
      13. The Company shall make its attorney available to advise the Executive or
      if,
      in the reasonable opinion of the Company’s attorney, a conflict arises which
      would prevent the Company’s attorney from advising the Executive, the Company
      shall reimburse the Executive for reasonable legal fees incurred in providing
      any cooperation pursuant to this Section 13. 

     

    14.  Non-Disparagement.
      

     

    The
      parties hereto shall not during the Term or thereafter denigrate, ridicule
      or
      intentionally criticize each other, their Affiliates or any of their respective
      products, services, employees, officers or directors, including, without
      limitation, by way of news interviews or the expression of personal views,
      opinions or judgments to the media.

     

    15.  The
      Executive’s Representations.
      

     

    The
      Executive represents and warrants to the Company that his entering into and
      performing his obligations under this Agreement will not violate any agreement
      between the Executive and any other person, firm or organization. The Executive
      also represents and warrants that he will not use or disclose any confidential
      or proprietary information of any prior employer in the course of performing
      his
      duties for the Company or any of its Affiliates.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    16.  Assignability;
      Binding Nature.

     

    This
      Agreement shall be binding upon and inure to the benefit of the Parties and
      their respective successors, heirs (in the case of the Executive) and assigns.
      For purposes of this Section 16, a successor to the Company shall be limited
      to
      an entity which shall have acquired substantially all of the business and/or
      assets of the Company and shall have expressly assumed (whether by agreement
      or
      operation of law) and agreed to perform this Agreement in the same manner and
      to
      the same extent that the Company would be required to perform if no such
      succession had taken place. No rights or obligations of the Executive under
      this
      Agreement may be assigned or transferred by the Executive other than his rights
      to compensation and benefits, which may be transferred only by will, operation
      of law or in accordance with Section 23 below.

     

    17.  Payroll
      Deductions.

     

    All
      applicable federal, state and local withholding taxes, and deductions authorized
      by the Executive or by law, shall be deducted from all payments set forth in
      this Agreement.

     

    18.  Entire
      Agreement.
      

     

    This
      Agreement contains the entire understanding and agreement between the Parties
      concerning the subject matter hereof and supersedes all prior agreements,
      understandings, discussions, negotiations and undertakings, whether written
      or
      oral, between the Parties with respect thereto. In the event of any
      inconsistency between any provision of this Agreement and any other provision
      of
      any other plan, policy or program of, or other agreement with, the Company,
      the
      provisions of this Agreement shall control. 

     

    19.  Amendment
      or Waiver.

     

    No
      provision in this Agreement may be amended unless such amendment is agreed
      to in
      writing and signed by the Executive and an authorized officer of the Company.
      No
      waiver by either Party of any breach by the other Party of any condition or
      provision contained in this Agreement to be performed by such other Party shall
      be deemed a waiver of a similar or dissimilar condition or provision at the
      same
      or any prior or subsequent time. Any waiver must be in writing and signed by
      the
      Party against whom it is being enforced (either the Executive or an authorized
      officer of the Company, as the case may be).

     

    20.  Severability.

     

    In
      the
      event that any provision or portion of this Agreement shall be determined to
      be
      invalid or unenforceable for any reason, in whole or in part, the remaining
      provisions of this Agreement shall be unaffected thereby and shall remain in
      full force and effect to the fullest extent permitted by law.

     

    21.  Survivorship.
      

     

    The
      respective rights and obligations of the Parties hereunder, including, without
      limitation, Section 9 (termination of employment), Section 10 (confidentiality;
      assignment of rights), Section 11 (non-competition; non-solicitation), Section
      12 (injunctive and other relief), Section 13 (cooperation), Section 14
      (non-disparagement), Section 22 (indemnification and liability insurance) and
      Section 25 (resolution of disputes), shall survive any termination of the
      Executive’s employment to the extent necessary to the intended preservation of
      such rights and obligations.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    22.  Indemnification
      and Liability Insurance.

     

    The
      Company hereby agrees that through out the Term, the Executive shall be covered
      by any general liability insurance policy that other directors and officers
      of
      the Company are covered by and agrees to indemnify the Executive and hold him
      harmless, both during the Term and thereafter, to the fullest extent permitted
      by law and under the by-laws of the Company against and in respect to any and
      all actions, suits, proceedings, claims, demands, judgments, costs, expenses
      (including reasonable attorneys’ fees), losses, and damages resulting from the
      Executive’s good faith performance of his duties as an officer or director of
      the Company.

     

    23.  Beneficiaries/References.

     

    The
      Executive shall be entitled, to the extent permitted under applicable plans,
      agreements or law, to select and change a beneficiary or beneficiaries to
      receive any compensation or benefit payable hereunder following the Executive’s
      death by giving the Company written notice thereof. In the event of the
      Executive’s death or a judicial determination of his incompetence, reference in
      this Agreement to the Executive shall be deemed, where appropriate, to refer
      to
      his beneficiary, estate or other legal representative.

     

    24.  Governing
      Law.

     

    This
      Agreement shall be governed by and construed and interpreted in accordance
      with
      the laws of Florida without reference to principles of conflicts of law,
      provided, however, that Federal law shall apply to the interpretation or
      enforcement of Section 25 below.

     

    25.  Resolution
      of Disputes.

     

    Except
      as
      otherwise provided in Section 12 above, any dispute arising under or relating
      to
      this Agreement shall be resolved by confidential and binding arbitration, to
      be
      held in the County of Palm Beach in the state of Florida before a single
      arbitrator in accordance with the rules and procedures of the Commercial
      Arbitration Rules of the American Arbitration Association. Judgment upon the
      award rendered by the arbitrator(s) may be entered in any court having
      jurisdiction thereof. Each Party shall be responsible for its own costs and
      expenses, including attorneys’ fees incurred in connection with the arbitration,
      and neither Party shall be liable for punitive or exemplary
      damages.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    26.  Notices.

     

    Any
      notice given to a Party shall be in writing and shall be deemed to have been
      given (i) when delivered personally, (ii) three days after being sent by
      certified or registered mail, postage prepaid, return receipt requested or
      (iii)
      two days after being sent by overnight courier (provided that a written
      acknowledgement of receipt is obtained by the overnight courier), with any
      such
      notice duly addressed to the Party concerned at the address indicated below
      or
      to such other address as such Party may subsequently give such notice of in
      accordance with this Section 26:

     

    
      	
            	If
              to the Company:	
              GVI
                Security Solutions Inc.

            

    

    
      
        	
              	 	
                2801
                  Trade Center Drive

              

      

      
        
          	
                	 	
                  Carrolton,
                    TX 75007

                

        

        
          
            	
                  	 	
                    Attention:
                      Chairman of the Board of Directors

                  

          

           

        

      

      
        

        
          	
                	If
                  to the Executive:	
                  Steven
                    E. Walin

                

        

        
          
            	
                  	 	
                    2600
                      NW 49th
                      Street

                  

          

          
            
              	
                    	 	
                      Boca
                        Raton, FL 33434

                    

            

            
              
                	
                      	 	
                         

                      

              

            

          

        

      

    

    27.  Excise
      Tax.
      

     

    Notwithstanding
      anything in this Agreement to the contrary, in the event that any payment,
      distribution, grant, vesting or benefit made or provided to or for the benefit
      of the Executive in connection with this Agreement or his employment with the
      Company or the termination thereof (a “Change in Control Payment”) is determined
      to be subject to any excise tax (“Excise Tax”) imposed by Section 4999 of the
      Code (or any successor to such section), if it is determined that, on an
      after-Excise Tax basis, the Executive’s economic benefit would be increased if
      the Company reduced the Change in Control Payments to be provided to the
      Executive to the extent necessary to avoid the imposition of the Excise Tax,
      the
      Company shall reduce such Change in Control Payments to the Executive. The
      determination regarding the Excise Tax will be made by an expert on the issues
      related to the Excise Tax selected by the Company and approved by the Executive.
      The same expert will be used for the determination of any other Excise Taxes
      due
      relating to a Change in Control for any other employee of the Company. In making
      its determination regarding the Excise Tax, the expert shall take into account
      all facts and circumstances, including without limitation, the fact that part
      of
      the Change in Control Payments is being paid by the Company to the Executive
      in
      consideration for the non-compete and non-solicitation covenants contained
      in
      Section 11 hereof.

     

    28.  Headings.
      

     

    The
      headings of the sections contained in this Agreement are for convenience only
      and shall not be deemed to control or affect the meaning or construction of
      any
      provision of this Agreement.

     

    29.  Counterparts.
      

     

    This
      Agreement may be executed in two or more counterparts.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

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

     

    
      	 	 	 
	 	GVI
              SECURITY
              SOLUTIONS INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	Title: 

    

     

    
      	 	 	 
	 	THE
              EXECUTIVE
	 
 	 
 	 
 
	 	 	 
	 	
              
Steven
              E. Walin
	 	 

    

     

    
      
        
        

      

      17

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