Re: Forbearance and Modification Agreement

Ladies and Gentlemen:

Reference is made to the Securities Purchase Agreement dated as of April 19, 2005 (the “Purchase Agreement”) among Thomas Equipment, Inc., a Delaware corporation (the “Company”), the undersigned (the “Investor”) and certain other parties, the Company’s Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate of Designation”), and the common stock purchase warrants issued to the Investor in connection with the Purchase Agreement (the “Warrant”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement.

In consideration for the various agreements below and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1.   Simultaneously with the execution and delivery of this Agreement, Section 6(b) of the Certificate of Designation shall be amended to read in its entirety as follows:

”(b) Conversion Price . The conversion price for the Preferred Stock shall equal $0.125   (the “ Conversion Price ”), subject to adjustment herein.”

”(b) Exercise Price . The exercise price of the Common Stock under this Warrant shall be $0.125, subject to adjustment hereunder (the “ Exercise Price ”).”

3.   Simultaneously with the execution and delivery of this Agreement, the Company shall issue new common stock purchase warrants (the “New Warrants”) to the Investor, in the form of Exhibit A hereto. 50% of such New Warrants shall have an exercise price of $0.125 and 50% of such New Warrants shall have an exercise price of $0.01. The New Warrants shall be exercisable into _______________________ shares of the Company’s common stock (“Common Stock”).

4.   Simultaneously with the execution and delivery of this Agreement, the Company shall enter into a registration rights agreement with the Investor (the “New Registration Rights Agreement”), in the form of Exhibit B hereto. The additional shares of Common Stock issuable upon conversion of the Preferred Stock as a result of the provisions of Section 1 of this Agreement and upon exercise of the New Warrants shall be subject to the New Registration Rights Agreement.

5.   The Company acknowledges that all of the shares of Common Stock issuable upon conversion of the Preferred Stock and the exercise of the Warrants (including, in each case, the additional shares of Common Stock so issuable as a result of the provisions of Section 1 of this Agreement) shall be “Registrable Securities” for the purposes of the Registration Rights Agreement, dated April 19, 2005, among the Company and the stockholders of the Company party thereto. Accordingly, the Company agrees to prepare and file with the Commission (as defined below) within 120 days of the date hereof such amendments to the registration statement and the prospectus used in connection therewith covering the resale of the shares issuable upon conversion of the Preferred Stock and exercise of the Warrant (the “Current Registration Statement”) as may be necessary to keep such registration statement continuously effective until all of the shares owned by the Investor and required to be registered for sale thereunder have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the Investor.

6.   Promptly following the execution and delivery of this Agreement, the Company shall take such actions as may be necessary to effectuate changes to the capitalization of the Company as set forth in Exhibit C attached hereto. In connection therewith, the irrevocable proxy agreement in the form of Exhibit D attached hereto, executed by Farwell Equity Partners LLC, David Marks and Frank Crivello, who collectively hold a majority of the issued and outstanding shares of the Company, shall be delivered to the Investor.

7.   Certain Triggering Events have occurred and are continuing under the Certificate of Designation by virtue of, among other things: (1) the Company’s failure to pay accrued dividends when due; and (2) the creditor protection proceedings undertaken by the Company’s operating subsidiaries (the “Existing Triggering Events”). The Existing Triggering Events entitle the Investor to immediately enforce all the rights and remedies set forth in the Certificate of Designation, including, but not limited to, the right of the Investor to seek cash redemption of amounts due under the Certificate of Designation and otherwise. The Company acknowledges and agrees that the Investor is not in any way agreeing to waive such Existing Triggering Events as a result of this Agreement or the performance by the parties of their respective obligations hereunder and the Investor expressly reserves its rights and remedies in regards thereof. Subject to the conditions contained herein and performance by the Company of all of the terms of this Agreement, the Investor agrees to forbear from enforcing the remedies set forth in Section 9 of the Certificate of Designation with respect to the Existing Triggering Events for a period of six months from the date hereof (the “Forbearance Period”). Notwithstanding the foregoing, the Forbearance Period shall immediately expire and be of no further force or effect upon the earliest to occur of (i) any default under this Agreement, (ii) the acceleration of the maturity of any indebtedness for borrowed money in excess of $50,000 owed by the Company or any subsidiary, or (iii) a material adverse change in the Company’s business or operations taken as a whole. This forbearance shall not be construed as an agreement by the Investor to forbear from exercising any of its rights or remedies under the Certificate of Designation with respect to any Triggering Events other than the Existing Triggering Events.

8.   Representations of Investor. The Investor hereby makes the representations and warranties set forth below to the Company:

8.1   Reliance on Exemptions. The Investor acknowledges that this transaction has not been reviewed by the United States Securities and Exchange Commission or any state agency because it is intended to be a nonpublic offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and state securities laws. The Investor understands that the Company is relying in part upon the truth and accuracy of, and the Investor’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Investor set forth herein in order to determine the availability of such exemption and the eligibility of the Investor to acquire the New Warrants.

8.2   Investment Purpose. Except as otherwise provided in Section 4 (a) above, Investor represents that the New Warrants are being acquired for its own account, for investment purposes only and not for distribution or resale to others in contravention of the registration requirements of the Securities Act. The Investor agrees that it will not sell or otherwise transfer the New Warrants and the Warrant Shares unless they are registered under the Securities Act or unless an exemption from such registration is available.

8.3   Accredited Investor. The Investor represents and warrants that it is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act.

8.4   Legends. The Investor understands that the certificates representing the New Warrants and the shares of Common Stock issuable upon exercise thereof, until such time as they have been registered under the Securities Act, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such certificates or other instruments):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, S