FUNDS ESCROW AGREEMENT

This Agreement (this ?Agreement?) is dated as of the 29the day of July, 2004 among POWERCOLD CORPORATION, a Delaware corporation (the "Company"), Laurus Master Fund, Ltd., a Cayman Islands company (the "Purchaser"), and Loeb & Loeb LLP, a  California limited liability partnership (the "Escrow Agent"):

W I T N E S S E T H:

WHEREAS, the Purchaser has advised the Escrow Agent that (a) the Company and the Purchaser have entered into a Securities Purchase Agreement (the "Purchase Agreement") for the sale by the Company to the Purchaser of a secured convertible term note (the "Term Note"), (b) the Company has issued to the Purchaser a common stock purchase warrant (the ?Term Note Warrant?) in connection with the issuance of the Term Note, (c) the Company and the Purchaser have entered into a Registration Rights Agreement covering the registration of the Company?s common stock underlying the Term Note and the Term Note Warrant (the ?Term Note Registration Rights Agreement?), and (c) the Company and the Purchaser have entered into a Master Security Agreement covering certain collateral securing the Term Note (the ?Master Security Agreement?);

WHEREAS, the Company and the Purchaser wish the Purchaser to deliver to the Escrow Agent copies of the Documents (as hereafter defined) and the Escrowed Payment (as hereafter defined) to be held and released by Escrow Agent in accordance with the terms and conditions of this Agreement; and

WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the terms and conditions of this Agreement;

NOW THEREFORE, the parties agree as follows:

ARTICLE I

INTERPRETATION

1.1.

Definitions.  Whenever used in this Agreement, the following terms shall have the meanings set forth below.

(a)

"Agreement" means this Agreement, as amended, modified and/or supplemented from time to time by written agreement among the parties hereto.

(b)

"Closing Payment" means the closing payment to be paid to Laurus Capital Management, LLC, the fund manager, as set forth on Schedule A hereto.

(c)

?Disbursement Letter? means that certain letter delivered to the Escrow Agent by each of the Purchaser and the Company setting forth wire instructions and amounts to be funded at the Closing.

(d)

"Documents" means copies of the Disbursement Letter, the Purchase Agreement, the Term Note, the Term Note Warrant, the Master Security Agreement, and the Term Note Registration Rights Agreement.

(e)

?Escrowed Payment" means $5,000,000.

1.2.

Entire Agreement.  This Agreement constitutes the entire agreement among the parties hereto with respect to the matters contained herein and supersedes all prior agreements, understandings, negotiations and discussions of the parties, whether oral or written.  There are no warranties, representations and other agreements made by the parties in connection with the subject matter hereof except as specifically set forth in this Agreement.

1.3.

Extended Meanings.  In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders.  The word "person" includes an individual, body corporate, partnership, trustee or trust or unincorporated association, executor, administrator or legal representative.

1.4.

Waivers and Amendments.  This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, in each case only by a written instrument signed by all parties hereto, or, in the case of a waiver, by the party waiving compliance.  Except as expressly stated herein, no delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder preclude any other or future exercise of any other right, power or privilege hereunder.

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