DIGITAL TRANSMISSION SYSTEMS, INC.


                          10.0% Subordinated Debenture
                               Due January 7, 2003
                                Principal Amount
                                   $400,000.00





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                                Table of Contents
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                                                                          Page #
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1.   PAYMENT TERMS ..........................................................  1
     1.1  Interest ..........................................................  1
     1.2  Payment; Default ..................................................  1
     1.3  Mandatory Redemption ..............................................  3
     1.4  Cancellation of Promissory Note ...................................  3

2.   Covenants of Company ...................................................  3
     2.1  Use of Proceeds ...................................................  3
     2.2  Corporate Existence ...............................................  3
     2.3  Maintenance of Properties, Etc. ...................................  4
     2.4  Nature of Business ................................................  4
     2.5  Insurance .........................................................  4
     2.6  Taxes, Claims for Labor and Materials .............................  4
     2.7  Compliance with Laws, Agreements, Etc. ............................  4
     2.8  ERISA Matters .....................................................  5
     2.9  Books and Records; Rights of Inspection ...........................  5
     2.10 Reports ...........................................................  5
     2.11 Limitations on Debt and Obligations ...............................  6
     2.12 Guaranties ........................................................  7
     2.13 Limitation on Liens ...............................................  7
     2.14 Restricted Payments ...............................................  8
     2.15 Investments .......................................................  9
     2.16 Mergers, Consolidations and Sales of Assets .......................  9
     2.17 Transactions with Affiliates ...................................... 11
     2.18 Notice ............................................................ 11
     2.19 Board of Directors:  Observer Rights .............................. 12
     2.20 Annual Plan ....................................................... 12

3.   Subordination of This Debenture ........................................ 12
     3.1  Subordination ..................................................... 12
     3.2  Liquidation, Etc. ................................................. 12
     3.3  Senior Indebtedness Default ....................................... 13
     3.4  Subrogation ....................................................... 13
     3.5  Company's Obligations Not Impaired ................................ 13

4.   Conversion of This Debenture ........................................... 14
     4.1  Conversion Privilege .............................................. 14
     4.2  Reservation of Shares ............................................. 14
     4.3  Conversion Procedure .............................................. 14

5.   Restrictions on Transfer, Registration Rights .......................... 20
     5.1  Legends; Restrictions on Transfer ................................. 20
     5.2  Registration Rights ............................................... 20

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6.   Events of Default; Remedies ............................................ 20
     6.1  Events of Default ................................................. 20
     6.2  Remedies Upon Default ............................................. 22
     6.3  Acceleration of Maturities ........................................ 22

7.   Amendments, Waivers and Consents ....................................... 23
     7.1  Consent Required .................................................. 23
     7.2  Solicitation of Debenture Holders ................................. 23
     7.3  Effect of Amendment or Waiver ..................................... 23

8.   Interpretation of Debenture; Definitions ............................... 23
     8.1  Definitions ....................................................... 23
     8.2  Accounting Principles ............................................. 26
     8.3  Directly or Indirectly ............................................ 26

9.   Miscellaneous .......................................................... 26
     9.1  Expenses, Stamp Tax Indemnity ..................................... 26
     9.2  Powers and Rights Not Waived; Remedies Cumulative ................. 27
     9.3  Notices ........................................................... 27
     9.4  Assignments ....................................................... 28
     9.5  Survival of Covenants ............................................. 28
     9.6  Severability ...................................................... 28
     9.7  Governing Law ..................................................... 28
     9.8  Captions; Counterparts ............................................ 28

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THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (ii) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.


                       DIGITAL TRANSMISSION SYSTEMS, INC.
                10.0% Subordinated Debenture due January 7, 2003

No.__________                                                   Atlanta, Georgia
$400,000.00                                                      January 7, 2000


         FOR VALUE RECEIVED, Digital Transmission Systems, Inc., a Delaware
corporation (the "Company"), promises to pay to the order of Wi-LAN, Inc., a
Province of Alberta, Canada corporation ("Purchaser"), pursuant to that certain
convertible debenture purchase agreement between the Company and Purchaser dated
December 29, 1999 (the "Debenture Purchase Agreement") at such place as
Purchaser may from time to time designate in writing, in lawful money of the
United States of America and in immediately available funds, by automatic debit,
the aggregate principal sum of Four Hundred Thousand Dollars ($4000,000.00) and
any accrued but unpaid interest thereon. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Debenture Purchase
Agreement.

         1.       PAYMENT TERMS

                  1.1 Interest. Interest shall accrue from the date of issue of
this Debenture at the rate of 10.0% per annum, payable quarterly by automatic
debit on the first day of each March, June, September and December, commencing
March 1, 2000, and ending at maturity, to mature on January 7, 2000. Interest
shall be computed on the basis of a 360-day year and the actual number of days
elapsed. Any principal payment due under this Debenture not paid when due,
whether at stated maturity, by notice of repayment, by acceleration or
otherwise, and any accrued but unpaid interest shall, to the extent permitted by
applicable law, thereafter bear interest (compounded monthly and payable upon
demand) at an annual rate of 15% in respect of such principal and such unpaid
interest until such unpaid amounts have been paid in full (whether before or
after judgment).

                  1.2 Payment; Default. (a) If payment hereunder becomes due and
payable on a Saturday, Sunday, or legal holiday, under the laws of the State of
Georgia, the due date thereof shall be extended to the next succeeding business
day. Demand,

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presentment, protest, diligence, notice of dishonor, and any other formality are
hereby expressly waived by the Company and any endorser or guarantor.

                  (b) If there is any default under this Debenture, and this
Debenture is placed in the hands of an attorney for collection, or is collected
through any Court, including any bankruptcy court, the Company promises to pay
to the order of the holder hereof such holder's reasonable attorneys' fees and
court costs actually incurred in collecting or attempting to collect or securing
or attempting to secure this Debenture or enforcing the holder's rights with
respect to the Collateral, to the extent allowed by the laws of the State of
Georgia or any state in which any collateral is situated.

                  (c) The holder of this Debenture may, with or without notice
to any party, and without affecting the obligations of any maker, surety,
guarantor, endorser, accommodation party, or any other party to this Debenture
(i) extend the time for payment of either principal or interest from time to
time, (ii) release or discharge any one or more parties liable on this
Debenture, (iii) suspend the right to enforce this Debenture with respect to any
persons, (iv) change, exchange, or increase any property in which the holder has
any interest securing this Debenture, (v) justifiably or otherwise, impair any
of the collateral or suspend the right to enforce against any such collateral,
and (vi) at any time it deems necessary or proper, call for and, should it be
made available, accept, as additional security, the signature or signatures of
additional parties or a security interest in property of any kind or description
or both.

                  (d) This Debenture is registered on the books of the Company
and is transferable only by surrender thereof at the principal office of the
Company at 3000 Northwoods Parkway, Building 330, Norcross, Georgia 30071, or
such other address as the Company shall have advised the holder of the Debenture
in writing, duly endorsed or accompanied by a written instrument of transfer
duty executed by the registered holder of this Debenture or its attorney duty
authorizing in writing. Payment of or on account of principal, premium, if any,
and interest on this Debenture shall be made only to or upon the order in
writing of the registered holder thereof.

                  (e) Any provision herein, or in the Debenture Purchase
Agreement, or any other document executed or delivered in connection herewith or
therewith, or in any other agreement or commitment whether written or oral,
expressed or implied, to the contrary notwithstanding, neither the Purchaser nor
any holder hereof shall in any event be entitled to receive or collect, nor
shall any amounts received hereunder be credited, so that Purchaser or any
holder hereof shall be paid, as Interest, a sum greater than the maximum amount
permitted by applicable law to be charged to the person primarily obligated to
pay this Debenture at the time in question. If any construction of this
Debenture or the Debenture Purchase Agreement, or arty and all other papers,
agreements or commitments, indicate a different right given to Purchaser or any
holder hereof to ask for, demand, or receive any larger sum as interest, such is
a mistake in calculation or wording which this clause shall override and
control, it being the intention of the parties that this Debenture, the
Debenture Purchase Agreement, and all other

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documents executed or delivered in connection herewith shall in all ways comply
with applicable law and proper adjustments shall automatically be made
accordingly. If Purchaser or any holder hereof ever receives, collects, or
applies as interest, any sum in excess of the maximum amount permitted by
applicable law, if any, such excess amount shall be applied to the reduction of
the unpaid principal balance of this Debenture, and if this Debenture is paid in
full, any remaining excess shall be paid to the Company. In determining whether
or not the interest paid or payable, under any specific contingency, exceeds the
maximum amount permitted by applicable law, if any, the Company and any holder
hereof shall, to the maximum extent permitted under applicable law: (i)
characterize any non-principal payment as an expense or fee rather than as
interest, and (ii) "spread" the total amount of interest throughout the entire
term of this Debenture.

                  1.3 Mandatory Redemption. Holders of this Debenture may at any
time require the Company to redeem part or all of this Debenture if (i) there
occurs a Change in Control (as defined in Section 8), (ii) the Company's Common
Stock is no longer trading on the NASDAQ over the counter bulletin board, or
(iii) the Company's Common Stock ceases to be publicly traded. In such case,
holders of this Debenture may give notice to the Company any of mandatory
redemption not less than 15 nor more than 30 days prior to the Redemption Date,
in each case specifying the Redemption Date, the aggregate principal amount of
this Debenture to be redeemed on such date, the principal amount of this
Debenture held by such holder to be redeemed on such date, and the Redemption
Price, which shall be equal to the sum of (A) the aggregate principal amount of
this Debenture tendered for redemption, plus (B) all accrued but unpaid interest
on such this Debenture, plus (C) interest on any principal payment not paid when
due and any accrued but unpaid interest at an annual rate of 15% in respect of
such principal and such unpaid interest, plus (D) any expenses or costs of
collection to which the holder of this Debenture is entitled pursuant to the
Debenture.

                  1.4 Cancellation of Promissory Note. Purchaser upon receipt of
this Debenture shall cancel and return to the Company as "paid in full" the
promissory note made by the Company to Purchaser in the principal amount of
$400,000 dated December 29, 1999.

         2.       Covenants of Company. From and after the Closing Date and
continuing so long as any amount remains unpaid on this Debenture.

                  2.1 Use of Proceeds. The Company shall use the proceeds of
this Debenture for general corporate purposes, including working capital and
debt repayment.

                  2.2 Corporate Existence. The Company will preserve and keep in
force and effect, and will cause each Subsidiary to preserve and keep in force
and effect, its corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a foreign
corporation in each jurisdiction where such qualification is required by
applicable law except where the failure to so qualify would

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not have a Material Adverse Effect on the financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole, and all
licenses and permits necessary to the proper conduct of its business.

                  2.3 Maintenance of Properties, Etc. The Company will maintain,
preserve and keep, and will cause each Subsidiary to maintain, preserve and
keep, its properties and assets which are used or useful in the conduct of its
business (whether owned in fee or pursuant to a leasehold interest) in good
repair and working order and from time to time will make all necessary repairs,
replacements, renewals and additions required in the opinion of the Company to
maintain the efficiency thereof.

                  2.4 Nature of Business. Neither the Company nor any Subsidiary
will engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Company and
its Subsidiaries would be substantially changed from the general nature of the
business engaged in by the Company and its Subsidiaries on the date of this
Debenture

                  2.5 Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage with respect to their respective
properties arid business in such forms and amounts and against such risks,
casualties and contingencies as the Company believes are customary for
corporations of comparable size arid condition (financial and otherwise) engaged
in the same or a similar business and owning and operating similar properties.

                  2.6 Taxes, Claims for Labor and Materials. Except where
failure to do so does not and would not constitute a Material Adverse Event, the
Company will promptly pay and discharge, and will cause each Subsidiary promptly
to pay and discharge, (i) all lawful taxes, assessments and governmental charges
or levies imposed upon the property or business of the Company or such
Subsidiary, respectively, (ii) all trade accounts payable in accordance with
usual and customary business terms, and (iii) all claims for work, labor or
materials, which if unpaid might become a lien or charge upon any property of
the Company or such Subsidiary; provided the Company or such Subsidiary shall
not be required to pay any such tax, assessment, charge, levy, account payable
or claim if (i) the validity, applicability or amount thereof is being contested
in good faith by appropriate actions or proceedings which will prevent the
forfeiture or sale of any property of the Company or such Subsidiary or any
material interference with the use thereof by the Company or such Subsidiary,
and (ii) the Company or such Subsidiary shall set aside on its books, reserves
deemed by it to be adequate with respect thereto.

                  2.7 Compliance with Laws, Agreements, Etc. Except where
failure to do so does not and would not constitute a Material Adverse Event, the
Company shall maintain its business operations and property owned or used in
connection therewith in compliance with (i) all applicable federal, state and
local laws, regulations and ordinances, and such laws, regulations and
ordinances of foreign jurisdictions, governing

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such business operations and the use and ownership of such property, and (ii)
all agreements, licenses, franchises, indentures and mortgages to which the
Company is a party or by which the Company or any of its properties is bound,

                  2.8 ERISA Matters. If the Company has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be applicable during such
period as any such Plan shall be in effect: (i) throughout the existence of the
Plan, the Company's contributions under the Plan will meet the minimum funding
standards required by ERISA and the Company will not institute a distress
termination of the Plan; and (ii) the Company will send to Purchaser a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the PBGC at the time that such notice is so
filed.

                  2.9 Books and Records; Rights of Inspection. The Company will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which entries will be made of all dealings or of or in relation to the
business and affairs of the Company or such Subsidiary, in accordance with GAAP
consistently maintained. The Company shall permit a representative of Purchaser
to visit any of its properties and inspect its corporate books and financial
record, and will discuss its accounts, affairs and finances with a
representative of Purchaser, during reasonable business hours, at all such times
as Purchaser may reasonably request, subject to Purchaser's duties of
confidentiality.

                  2.10 Reports. The Company will furnish to Purchaser the
following information, which information shall be subject to confidential
treatment by Purchaser:

                  (a) Monthly Statements. Within 30 days after the end of each
month, beginning the month of January 2000, monthly internal financial reports
which at a minimum shall consist of a balance sheet of the Company as of the
close of such month and related statements of income and cash flows for the
one-month period then ended, as well as any additional financial reports for
such period routinely prepared with respect to the Company and the Subsidiaries;

                  (b) Quarterly Statements. As soon as available and in any
event within 45 days after the end of each quarterly fiscal period (except the
last) of each fiscal year, copies of:

                           (i) consolidated balance sheets of the Company and
Subsidiaries as of the close of the three-month period then ended, setting forth
in comparative form the consolidated figures at the end of the preceding fiscal
year,

                           (ii) consolidated statements of income of the Company
and Subsidiaries for the three-month period then ended, setting forth in
comparative form the consolidated figures for the corresponding period of the
preceding fiscal year, and

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                           (iii) consolidated statements of cash flows of the
Company and Subsidiaries for the portion of the fiscal year ending with such
three-month period, setting forth in comparative form the consolidated figures
for the corresponding period of the preceding fiscal year, all in reasonable
detail and accompanied by a certificate of an authorized financial officer of
the Company that such financial statements fairly present the financial
condition and results of operations and cash flows of the Company at and for the
periods presented, subject to normal year-end adjustment:

                  (c) Annual Statement. As soon as available and in any event
within 90 days after the close of each Fiscal year of the Company, copies of:

                           (i) consolidated balance sheets of the Company and
Subsidiaries as of the close of such fiscal year, and

                           (ii) consolidated statements of income and
consolidated statements of changes ill stockholders, equity and cash flows of
tile Company and Subsidiaries for such fiscal year, in each case setting forth
in comparative form the consolidated figures for the preceding fiscal year, all
in reasonable detail and accompanied by an unqualified report thereon of a firm
of independent public accountants of recognized national standing:

                  (d) Special Audit Reports. Promptly upon receipt thereof, one
copy of each interim or special audit made by independent accountants of the
books of the Company or any Subsidiary;

                  (e) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and of each periodic or
current report, and any registration statement or prospectus filed by the
Company to any Subsidiary with any securities exchange or the SEC or any
successor agency, and copies of any orders in any proceedings to which the
Company or any of its Subsidiaries is a party, issued by any governmental
agency, federal of state, having jurisdiction over the Company or any of its
Subsidiaries. The Company specifically covenants to timely file each such item
required to be filed with the SEC and each state requiring securities laws
filings; and

                  (f) Requested Information. With reasonable promptness, such
financial data and other information relating to the business of the Company as
Purchaser may from time to time reasonably request.

                  2.11 Limitations on Debt and Obligations. Except as to

                           (i) Indebtedness existing on the date hereof and
reflected on the Company's unaudited balance sheet as of September 30, 1999;

                           (ii) the Indebtedness incurred pursuant to this
Debenture;

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                           (iii) accounts payable and other trade payables
incurred in the ordinary course of business;

                           (iv) purchase money indebtedness incurred by the
Company in the purchase of equipment and other property used by the Company in
the ordinary course of business, such purchase money indebtedness not to exceed
an aggregate amount of principal and accrued interest thereon of $1,000,000 at
any time outstanding;

                           (v) obligations of the Company pursuant to
capitalized leases;

                           (vi) Indebtedness that refinances secured
Indebtedness under clause (i) above, provided that the collateral for such new
Indebtedness is the collateral for the refinanced secured Indebtedness and the
aggregate principal amount of such Indebtedness does not exceed the principal
amount Outstanding under the refinanced Indebtedness, and

                           (vii) Indebtedness incurred in connection with the
acquisition of a business (including the assets of a business), provided such
Indebtedness is secured solely by the assets of the business so acquired;

the Company and its Subsidiaries shall not, on a consolidated basis, incur
additional indebtedness which is senior to or pari passu with this Debenture in
excess of an aggregate amount of principal and interest of $1,500,000 at any
time outstanding without the prior written consent of Purchaser. Notwithstanding
the foregoing, the aggregate principal amount of any Indebtedness secured by the
accounts receivable and/or inventory of the Company and its Subsidiaries
(whether such Indebtedness is permitted under clause (i) or clause (vi)), may be
increased based upon the amount of the accounts receivable and/or inventory
eligible as collateral, so long as the ratio of the outstanding principal amount
of such Indebtedness to "eligible receivables" and/or "inventory" remains the
same (howsoever such terms are defined but provided such definitions remain
consistent).

                  2.12 Guaranties. Without the prior written consent of
Purchaser, the Company will not, and will not permit any Subsidiary to, become
or be liable in respect of any Guaranty except Guaranties by the Company which
are limited in maximum financial exposure to the amounts set forth in, and are
incurred in compliance with, the provisions of Section 2.11 of this Debenture.

                  2.13 Limitation on Liens. Without the prior written consent of
Purchaser, the Company will not, and will not permit any Subsidiary to, create
or incur, or suffer to be incurred or to exist, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (collectively, "Liens") on its
or their property or assets, whether now owned or hereafter acquired or upon any
income or profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to the payment of
its or their general creditors, or acquire or agree to acquire, or permit any
Subsidiary to acquire, any property or assets upon

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conditional sales agreement or other title retention devices, except those Liens
which exist as of the date hereof as set forth on Schedule 2.13, and except:

                  (a) purchase money liens on and security interests in
equipment hereafter acquired securing Indebtedness permitted by Section 2.11(iv)
of this Debenture, provided that such liens and security interests attach only
to the equipment so acquired and do not encumber any other properly of the
Company or any Subsidiary;

                  (b) liens for taxes (excluding federal and state income taxes)
not yet payable or being contested in good faith by appropriate proceedings and
for which adequate reserves have been provided on the books of the Company or a
Subsidiary;

                  (c) mechanics', materialmen's, warehousemen's, carriers' or
other like liens arising in the ordinary course of business of the Company or
any Subsidiary, if any, arising with respect to obligations which are not
overdue for a period longer than 90 days or which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided on the books of the Company or a Subsidiary;

                  (d) deposits or pledges to secure the performance of bids,
tenders, contracts, public or statutory obligations, surety or appeal bonds or
other deposits or pledges for purposes of a like general nature or given in the
ordinary course of business by the Company or any Subsidiary; and

                  (e) other encumbrances consisting of zoning restrictions,
casements, restrictions on the use of real property or minor irregularities in
the title thereto, which do not arise in connection with the borrowing of, or
any obligation for the payment of, money and which, in the aggregate, do riot
materially detract from the value of the premises or the business, properties or
assets of the Company or any Subsidiary.

                  2.14 Restricted Payments. Except as set forth on Schedule
2.14, the Company will not, without the prior written consent of Purchaser and
except as hereinafter provided:

                  (a) declare or pay any dividends, either in cash or property,
on any shares of its capital stock of any class except dividends or other
distributions payable solely in shares of Common Stock of the Company; or

                  (b) directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its capital
stock (other than in exchange for or out of the net proceeds to the Company from
the substantially concurrent issue or sale of other shares of capital stock of
the Company or warrants, rights or options to purchase or acquire any shares of
its capital stock); or

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                  (c) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock, provided,
that distributions from a Subsidiary to the Company, or from a Subsidiary to
another Subsidiary, shall be permitted.

                  2.15 Investments. The Company will not, and will not permit
any Subsidiary to, make any Investments outside the ordinary course of business
of the Company or any Subsidiary, without the prior written consent of
Purchaser, except:

                  (a) Investments in direct obligations of the United States of
America, or any agency or instrumentality of the United States of America, the
payment or guaranty of which constitutes a full faith and credit obligation of
the United States of America, in either case maturing in twelve months or less
from the date of acquisition thereof;

                  (b) Investments in certificates of deposit maturing within one
year from the date of origin by a bank or trust company organized under the laws
of the United States, or any state thereof having capital, surplus and undivided
profits aggregating at least $100,000,000 and whose long-term certificates of
deposit are, at the time of acquisition thereof by Company or a Subsidiary,
rated AA or better by Standard & Poor's Corporation or AA or better by Moody's
investors Service, Inc.;

                  (c) Investments in commercial paper maturing in 270 days or
less from the date of issuance which, at the time of acquisition by the Company
or any Subsidiary, is accorded the highest rating by Standard & Poor's
Corporation, Moody's Investors Service, Inc. or another nationally recognized
credit rating agency of similar standing;

                  (d) loans or advances in the usual and ordinary course of
business to officers, directors and employees for expenses (including moving
expenses related to a transfer) incidental to carrying on the business of the
Company or any Subsidiary;

                  (e) receivables arising from the sate of goods and services in
the ordinary course of business of the Company and its Subsidiaries; and

                  (f) acquisitions, mergers, and consolidations permissible
under Section 2.16(a)(ii).

                  2.16 Mergers, Consolidations and Sales of Assets.

                  (a) Without the prior written consent of Purchaser, the
Company will not, and will nor permit any Subsidiary to (i) consolidate with or
be a party to a merger or share exchange with any other corporation, or (ii)
sell, lease or otherwise dispose of all or any substantial part (as defined in
paragraph (d) of this Section 2.16) of the assets of Company and its
Subsidiaries; provided, however, that

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                           (i) any Subsidiary may merge or consolidate with or
into the Company or any wholly-owned Subsidiary so long as in any merger or
consolidation involving the Company, the Company shall be the surviving or
continuing corporation; and

                           (ii) the Company may consolidate or merge with any
other corporation, or acquire all or a substantial portion of the assets of any
other entity, provided that such corporation or entity is engaged primarily in
the Company's general line of business on a consolidated basis as conducted on
the date hereof, and further provided that (A) Company shall be the surviving or
continuing corporation, (B) at the time of such consolidation or merger and
after giving effect thereto no Default or Event of Default shall have occurred
and be continuing, (C) such consolidation or merger shall be deemed in the good
faith estimate of the Board of Directors to be a consolidation or merger that
will be accretive to earnings per share in the fiscal year following the
consolidation or merger and (D) such consolidation or merger shall be approved
by the Company's Board of Directors, and

                           (iii) any Subsidiary may sell, lease or otherwise
dispose of all or any substantial part of its assets to the Company or any other
Wholly-owned Subsidiary.

                  (b) Without the prior written consent of Purchaser, the
Company will not permit any Subsidiary to issue or sell any shares of stock of
any class (Including as "stock" for the purposes of this Section 2.16, any
warrants, rights or options to purchase or otherwise acquire stock or other
securities exchangeable for or convertible into stock) of such Subsidiary to any
person other than the Company or a Wholly-owned Subsidiary, except for the
purpose of qualifying directors, or except in satisfaction of the validly
preexisting preemptive rights of minority shareholders in connection with the
simultaneous issuance of stock to the Company and/or a Subsidiary whereby the
Company and/or such Subsidiary maintain their same proportionate interest in
such Subsidiary,

                  (c) Without the prior written consent of Purchaser, the
Company will not sell, transfer or otherwise dispose of any shares of stock in
any Subsidiary (except to qualify directors) or any indebtedness of any
Subsidiary, and will not permit any Subsidiary to sell, transfer or otherwise
dispose of (except to the Company or a Wholly- owned Subsidiary) any shares of
stock or any indebtedness of any other Subsidiary, unless all of the following
conditions are met

                           (i) simultaneously with such sale, transfer or
disposition, all shares of stock and all indebtedness of such Subsidiary at the
time owned by the Company and by every other Subsidiary shall be sold,
transferred or disposed of as an entirety,

                                       10

<PAGE>

                           (ii) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the retention of such
stock and indebtedness is no longer in the best interests of the Company;

                           (iii) such stock and Indebtedness is sold,
transferred or otherwise disposed of to a person, for a cash consideration and
on terms reasonably deemed by the Board of Directors to be adequate and
satisfactory;

                           (iv) the Subsidiary being disposed of shall not have
any continuing investment in the Company or any other Subsidiary not being
simultaneously disposed of; and

                           (v) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company and its
Subsidiaries taken as a whole.

                  (d) As used in this Section 2.16, a sale, lease or other
disposition of assets shall be deemed to be a "substantial part" of the assets
of the Company and its Subsidiaries only if the book value of such assets, when
added to the book value of all other assets sold, leased or otherwise disposed
of by the Company and its Subsidiaries (other than in the ordinary course of
business) during, the twelve month period ending on the date of such sale, lease
or other disposition, exceeds 50 percent of the consolidated net tangible assets
of the Company and its Subsidiaries determined as of the end of the immediately
preceding fiscal year.

                  2.17 Transactions with Affiliates. Except as set forth on
Schedule 2.17, without the prior written consent of Purchaser, the Company will
not and will not permit any Subsidiary to, enter into or be a party to any
transaction or arrangement with any officer, director or Affiliate (including,
without limitation, the purchase from, sale to, or exchange of property with, or
the rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or Such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than could be obtained in an arm's-length
transaction with a person other than an Affiliate, in each case as determined in
good faith by a majority of the disinterested directors of the Company.

                  2.18 Notice. The Company shall promptly upon the discovery
thereof give written notice to Purchaser of (i) the occurrence of any Default or
Event of Default, (ii) the occurrence of any material default or material event
of default under any other agreement providing for Indebtedness of the Company
or any Subsidiary or tinder a capitalized lease obligation, (iii) any material
actions, suits or proceedings instituted by any person against the Company or a
Subsidiary or affecting any of the assets of the Company or any Subsidiary, or
(iv) any investigation initiated by, or any dispute between and any governmental
regulatory body, on the one hand, and the Company or any Subsidiary, on the
other hand, which dispute might interfere with the normal operations

                                       11

<PAGE>

of the Company or any Subsidiary; provided, however, that Purchaser shall not be
required by this Debenture to disclose any such information provided in (iii) or
(iv) above to any third party other than Purchaser's counsel and except to the
extent compelled by law or otherwise authorized by the Company.

                  2.19 Board of Directors: Observer Rights. As soon as
practicable, and in nu case later than 30 days after the Closing of the
transactions contemplated hereby, nominees of Purchaser shall be nominated to be
elected to hold a majority of the seats of the Board of Directors in accordance
with the Company's Articles of Incorporation and Bylaws and as reasonably
acceptable to the Company. Any nominee of Purchaser hereunder shall be
reimbursed for all reasonable expenses incurred as a director and shall be
entitled to receive such compensation as may be received by other non-employee
directors of the Company, including indemnity and advancement of expenses to the
fullest extent permitted under applicable law,

                  2.20 Annual Plan. The Board of Directors shall adopt no later
than the sixtieth day of each fiscal year, a financial plan for the Company,
which shall include at least a projection of income and expenses (including
capital expenditures) and a projected cash flows statement for each month in
such fiscal year, and a projected balance sheet as of the end of each month in
such fiscal year (the "Annual Plan"). The Annual Plan may only be amended or
revised, in any material manner, with the approval of the Board of Directors.

         3.       Subordination of This Debenture.

                  3.1 Subordination. The indebtedness evidenced by this
Debenture, including principal and interest, shall be Subordinate and junior to
the prior payment of the indebtedness of the Company for borrowed money only as
set forth on Schedule 3.1 (the "Senior Indebtedness"), and the indebtedness
evidenced by this Debenture shall be senior in right of payment to all other
Indebtedness of the Company which is expressly stated to be subordinate or
junior in any respect to other Indebtedness of the Company, including this
Debenture.

         3.2      Liquidation, Etc.

                  (a) Upon any distribution of assets of the Company in
connection with any dissolution, winding up, liquidation or reorganization of
the Company (whether in bankruptcy, insolvency, or receivership proceedings or
upon an assignment for the benefit of creditors or otherwise), the holders of
all Senior Indebtedness shall first be entitled to receive payment in full of
the principal thereof, premium, if any, and interest due thereon, and all costs
and expenses (including attorneys' fees) related thereto, before the holders of
this Debenture shall be entitled to receive any payment on account of the
principal of or interest on or any other amount owing with respect to this
Debenture (other than payment in shares of capital stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan

                                       12

<PAGE>

of reorganization or readjustment, which stock and securities are subordinated
to the payment of all Senior Indebtedness and securities received in lieu
thereof which may at tile time be outstanding). Under the circumstances provided
herein, the holders of the Senior Indebtedness shall have the right to receive
and collect any distributions made with respect to this Debenture until such
time as the Senior Indebtedness is paid in full, and shall have the further
right to take such actions as may be deemed necessary or required to so receive
and collect such distributions including making or filing any proofs of claim
relating thereto.

                  (b) Without in any way modifying the provisions of this
Section 3 or affecting the subordination effected hereby if such notice is not
given, the Company shall give prompt written notice to the Purchaser of any
contemplated dissolution, winding up, liquidation or reorganization of the
Company (whether in bankruptcy, insolvency or receivership proceedings or upon
an assignment for the benefit of creditors or otherwise).

                  3.3 Senior Indebtedness Default. The Company shall not declare
or pay any dividends or make any distributions to the holders of capital stock
of the Company, or Purchase or acquire for value, any of this Debenture if any
default has occurred and is continuing with respect to the payment of principal
of, premium if any, or interest on any Senior Indebtedness

                  3.4 Subrogation. Upon the prior payment in full of ail Senior
Indebtedness, the Purchaser shall be subrogated to the rights of the holders of
the Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until all amounts owing on this
Debenture shall be paid in full, and for the purpose of such subrogation, no
payments or distributions to the Purchaser otherwise payable or distributable to
the holders of Senior Indebtedness shall, as between the Company, its creditors,
other than the holders of Senior Indebtedness and Purchaser, be deemed to be
payment by the Company to or on account of this Debenture, it being understood
that the provisions of this Section 3 are and are intended solely for the
purpose of defining the relative rights of Purchaser, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.

                  3.5 Company's Obligations Not Impaired. Nothing contained in
this Section 3 is intended to or shall impair, as between the Company and
Purchaser, the obligation of the Company, which is absolute and unconditional,
to pay the Purchaser the principal of and interest on this Debenture as and when
the same shall become due and payable in accordance with the terms of this
Debenture, or is intended to or shall affect the relative rights of the
Purchaser other than with respect to the holders of the Senior Indebtedness,
nor, except as expressly provided in this Section 3, shall anything herein or
therein prevent the Purchaser from exercising all remedies otherwise permitted
by applicable law upon the occurrence of an Event of Default under this
Debenture.

                                       13

<PAGE>

         4.       Conversion of This Debenture.

                  4.1 Conversion Privilege. This Debenture shall be convertible
at any time into shares of Common Stock at the Conversion Ratio. The initial
Conversion Price shall be $ 1.00 per share, so that immediately after the
Closing this Debenture shall be convertible into 400,000 shares of Common Stock.
Any portion of the outstanding principal balance of this Debenture may be
converted at the election of the holder of any Debenture into shares of Common
Stock at ally time and from time to time, at the Conversion Ratio and the
Conversion Price then in effect, from and after the Closing and until the
repayment in full of the principal amount, all accrued but unpaid interest
under, and all expenses and other costs required to be paid by the Company under
this Debenture. Upon such conversion, that portion of principal so converted
shall be deemed to be paid in full upon the delivery to the holder of this
Debenture of a certificate representing the proper number of shares of Common
Stock to be issued to such holder upon such conversion. Conversion of any
portion of the principal balance of this Debenture shall not relieve the Company
to pay any accrued but unpaid interest through the date of conversion on the
portion of the principal balance of this Debenture so converted. In no case
shall interest be convertible into Common Stock,

                  4.2 Reservation of Shares. The Company shall take all such
corporate action as may be required to validly reserve for issuance a sufficient
number of shares of Common Stock into which this Debenture may be converted.

                  4.3 Conversion Procedure.

                  (a) This Debenture shall be convertible into shares of Common
Stock at the Conversion Ratio at the option of the holder, in whole or in part,
at any time. The holder shall effect conversions by delivering to the Company a
written notice (the "Conversion Notice"), accompanied by the certificate
representing this Debenture to be converted. Each Conversion Notice shall
specify the principal amount of this Debenture to be converted and the date on
which such conversion is to be effected (the "Conversion Date"), which shall in
no event be earlier than the date such Conversion Notice is given in accordance
with Section 4.3(i) below. Each Conversion Notice, once given, shall be
irrevocable. If the holder is converting less than all this Debenture held by
such holder, the Company shall promptly deliver to the holder a certificate for
such number of this Debenture as have not been converted.

                  (b) Within ten trading days after the Conversion Date, the
Company shall deliver to the holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
then required by law), representing the number of shares of Common Stock being
acquired upon the conversion of this Debenture, and (ii) a certificate
representing the number of this Debenture not converted; provided, however, that
the Company shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon conversion of any this Debenture, until
certificates evidencing such this Debenture are either delivered to the Company
or

                                       14

<PAGE>

any transfer agent for the Common Stock, or the holder notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond (or
other adequate security acceptable to the Company) satisfactory to the Company
to indemnify the Company from any loss incurred by it in connection therewith.

                  (c) (i) The initial Conversion Price shall be $1.00 per share.

                           (ii) If the Company, at any time while any this
Debenture is outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock payable in shares of
its capital stock (whether payable in shares of its Common Stock or of capital
stock of any class), (b) subdivide outstanding shares of Common Stock into
larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Conversion Price
designated in Section 4.3(c)(i) shall be multiplied by a fraction of which the
numerator shall be the number of shires of Common Stock of the Company
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 4.3(c)(ii) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.

                           (iii) If the Company, at any time while any of this
Debenture is outstanding, shall issue rights or warrants to all holders of
Common Stock entitling them to subscribe for or purchase shares of Common Stock
at a price per share less than the Per Share Market Value of Common Stock at the
record date mentioned below, the Conversion Price designated in Section
4.3(c)(i) shall be multiplied by a fraction, of which the denominator shall be
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase and of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share Market Value.
Such adjustment shall be made whenever such rights or warrants are issued and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Conversion Price pursuant to this Section
4.3(c)(iii), if such right or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section 4.3 after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on the basis of
offering for subscription

                                       15

<PAGE>

or purchase only that number of shares of Common Stock actually purchased upon
the exercise of such rights or warrants actually exercised.

                           (iv) If the Company, at any time while any this
Debenture is outstanding, shall issue (A) options or warrants entitling the
holder to subscribe for or purchase shares of Common Stock at an exercise price
less than the Conversion Price, or (B) securities convertible into Common Stock
at a conversion price less than the Conversion Price, then the Conversion Price
designated in Section 4.3(c)(i) shall be automatically reset to such lower
conversion price, provided that the adjustment provided by this Section
4.3(c)(iv) shall not apply to issuance of securities pursuant to options,
warrants, or conversion rights outstanding on the Closing Date, and further,
shall not be applicable until the Company shall have issued options, warrants,
or convertible securities, exercisable or convertible into 400,000 shares of
Common Stock at an exercise or conversion price less than the Conversion Price,
provided that such exercise or conversion price is equal to or greater than the
Per Share Market Value on the date of issuance. Such adjustment shall be made
whenever such options, warrants or convertible securities are issued at an
exercise or conversion price less than the Conversion Price, and such adjustment
shall become effective immediately after the date on which such options,
warrants or convertible securities are issued at an exercise or conversion price
less than the Conversion Price.

                           (v) In case the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock (and
not to holders of this Debenture) evidences of its indebtedness, or assets or
rights or warrants, to subscribe for or purchase any security (excluding those
referred to in Section 4.3(c)(iii) above) then in each such case the Conversion
Price at which this Debenture shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect prior to the record
date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
of the Company in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, then such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of this Debenture and
provided, further, that the Company, after receipt of the determination by such
Appraiser shall have the right to select an additional Appraiser, in which case
the fair market value shall be equal to the average of the determination by each
such Appraiser. In either case the adjustments shall be described in a statement
provided to all holders of this Debenture of the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to one

                                       16

<PAGE>

share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.

                           (vi) All calculations tinder this Section 4.3 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be.

                           (vii) Whenever the Conversion Price is adjusted
pursuant to Section 4.3(c)(ii), (iii), (iv) or (v), the Company shall promptly
mail to each holder of this Debenture, a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.

                           (viii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
any sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which share exchange the Common Stock
is converted into other securities, cash or property, then the holders of this
Debenture then outstanding shall have the right thereafter to convert such this
Debenture only into the kind and amount of shares of stock and other securities
and property receivable upon or decreed to be held following such
reclasification, consolidation, merger, sale, transfer or share exchange by a
holder of a number of shares of the Common Stock of the Company into which such
this Debenture could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the holder of shares of this
Debenture the right to receive the securities or property set forth in this
Section 7.3(c)(viii) upon any conversion following such consolidation, merger,
sale, transfer or share exchange. This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers of share
exchanges.

                           (ix) In case:

                                   (A) the Company shall declare a dividend (or
any other distribution) on its Common Stock; or

                                   (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock; or

                                   (C) the Company shall authorize the granting
to all holders of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights; or

                                   (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock of the Company (other than a subdivision or combination of the outstanding
shares of Common Stock), any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets of the
Company, or any compulsory share

                                       17

<PAGE>

exchange whereby the Common Stock is converted into other securities, cash or
property; or

                                   (E) of the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company;

then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Debenture, and shall cause to be mailed to the
holders of this Debenture at their last addresses as they shall appear upon the
stock books of the Company, at least 10 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (i) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is riot to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined, or (ii) the
date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up (but no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the corporate action required
to be specified in such notice).

                  (d) In case at any time conditions shall arise by reason of
action taken by the Company which in the opinion of the Board of Directors of
the Company are not adequately covered by the other provisions hereof and which
might materially and adversely affect the rights of the holders of this
Debenture (different than or distinguished from the effect generally on the
rights of holders of any indebtedness of the Company) or in case at any time any
such conditions are expected to arise in the opinion of the Board of Directors
of the Company by reason of any action contemplated by the Company, an Appraiser
selected by the holders of more than 50% of the principal amount of this
Debenture shall give its opinion as to the adjustment, if any (not inconsistent
with the standards established in this Section 4.3), of the Conversion Price
(including, if necessary, any adjustment as to the securities into which this
Debenture may thereafter be convertible) and any distribution which is or would
be required to preserve without diluting tile rights of the holders of this
Debenture; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case the adjustment shall be equal to the average of the
adjustments recommended by each such Appraiser. The Board of Directors of the
Company shall make the adjustment recommended forthwith upon the receipt of such
opinion or opinions or the taking of any such action contemplated, as the case
may be; provided, however, that no such adjustment of the Conversion Price shall
be made which in the opinion of the Appraiser(s) giving the aforesaid opinion or
opinions would result in an increase of the Conversion Price then in effect.

                                       18

<PAGE>

                  (e) The Company covenants that it will at all times reserve
and keep available, out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of this Debenture as herein provided,
free from preemptive rights or any other actual contingent purchase rights of
persons other than the holders of this Debenture, such number of shares of
Common Stock as shall be Assumable (taking into account the adjustments and
restrictions of Section 4.3(c) hereof) upon the conversion of all outstanding
this Debenture. The Company covenants that all shares of Common Stock that shall
he so issuable shall, upon issue, be duly and validly issued and fully paid and
nonassessable.

                  (f) The Company shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time.

                  (g) The issuance of certificates for shares of Common Stock on
conversion of this Debenture shall be made without charge to the holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate in a name other than that
of the holder of the shares of this Debenture converted and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such Lax has been paid.

                  (h) For purposes of this Debenture,

                  (A) "Conversion Ratio" means, at any time, a fraction, of
which the numerator is the aggregate principal amount of this Debenture to be
converted into Common Stock, and of which the denominator is the Conversion
Price at such time.

                  (B) "Per Share Market Value" means on any particular date (i)
the last sale price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange on which the Common Stock has been
listed or if there is no such price on such date, then the last price on such
exchange on the date nearest preceding such date, or (ii) if the Common Stock is
not listed on the Nasdaq National Market or any stock exchange, the average of
the bid and asked price for a share of Common Stock in the over- the-counter
market as reported by the Nasdaq SmallCap Market at the close of business on
such date, or (iii) if the Common Stock is not quoted on the Nasdaq SmallCap
Market, the average of the bid and asked price for a share of Common Stock in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), or (iv) if the Common Stock is no longer publicly traded the
fair market value of a share of Common Stock as determined by an Appraiser (as
defined in

                                       19

<PAGE>

Section 4(c)(v) above) selected in good faith by the holders more than 50% of
the principal amount of this Debenture then outstanding; provided, however, that
the Company after receipt of the determination by such Appraiser, shall have the
tight to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser.

                  (C) "Trading day" means (i) a day on which the Common Stock is
traded on the Nasdaq National Market or principal stock exchange on which the
Common Stock has been listed, or (ii) if the Common Stock is not listed on the
Nasdaq National Market or any stock exchange, a day on which the Common Stock is
traded on the Nasdaq SmallCap Market, or (iii) if the Common Stock is not quoted
on the Nasdaq SmallCap Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).

                  (i) Each Conversion Notice shall be given by facsimile or by
mail, postage prepaid, addressed to the attention of the Chief Financial Officer
of the Company at the facsimile telephone number or address of the principal
place of business of the Company. Any such notice shall be deemed given and
effective upon the earliest to occur of (i) receipt of such facsimile at such
facsimile telephone number, (ii) three days after deposit in the United States
mail, or (iii) upon actual receipt by the party to whom such notice is required
to be given.

         5.       Restrictions on Transfer, Registration Rights.

                  5.1 Legends; Restrictions on Transfer. Neither this Debenture
nor the shares of Common Stock issuable upon conversion of this Debenture have
been registered under the Securities Act or any state securities laws.

                  5.2 Registration Rights. The Purchaser shall be entitled to
register Common Stock issuable upon conversion of this Debenture as provided in
the Registration Rights Agreement.

         6.       Events of Default; Remedies.

                  6.1 Events of Default. The occurrence of any one of the
following shall constitute an "Event of Default" under this Debenture:

                  (a) Default shall occur in the payment of interest on any
Debenture when the same shall have become due, provided, that any such default
shall be curable within two business days if the failure to make such payment
when due was caused by a financial institution's error in effecting an automatic
debit transaction against an account containing sufficient funds; or

                                       20

<PAGE>

                  (b) Default shall occur in the making of any payment of the
principal of any Debenture or the premium, if any, by the Company thereon at the
expressed or any accelerated maturity date or at any date fixed by the Company
for prepayment, provided, that any such default shall be curable within two
business days if the failure to make such payment when due was caused by a
financial institution's error in effecting an automatic debit transaction
against an account containing sufficient funds; or

                  (c) Default shall be made in the payment of the principal of
or interest on any material Indebtedness (other than this Debenture) of the
Company or any Subsidiary and such default shall continue beyond the period of
grace if any, allowed with respect thereto; or

                  (d) Default or the happening of any event shall occur under
any contract, agreement, lease, indenture or other instrument under which any
material Indebtedness (other than this Debenture) of the Company or any
Subsidiary may be issued and such default or event shall continue for a period
or time sufficient to permit the acceleration of the maturity of any such
Indebtedness of the Company or any Subsidiary outstanding thereunder; or

                  (e) Default shall occur in the observance or performance of
any covenant or agreement contained in Sections 2.11 through 2.20 hereof which
is not remedied within 30 days of notice of such Default; or

                  (f) Default shall occur in the observance or performance of
any other provision of this Debenture which is not remedied within 30 days after
the earlier of (i) the date on which the Company first obtains knowledge of such
default, and (ii) the date on which written notice thereof is given to the
Company by the holder of any Debenture; or

                  (g) Any representation or warranty made by the Company herein,
or made by the Company in any statement or certificate furnished by the Company
in connection with the consummation of the issuance and delivery of this
Debenture or furnished by the Company pursuant hereto, is untrue in any material
respect as of the date of the issuance or making thereof and would have a
Material Adverse Effect, subject to the limitations on survival of Section 9.5;
or

                  (h) Final judgments for the payment of money aggregating in
excess of $100,000, are outstanding against the Company or any Subsidiary or
against any property or assets of either and any one of such judgments has
remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a
period of 30 days from the date of its entry; or

                  (i) The Company or arty Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any Subsidiary
applies for or consents to the

                                       21

<PAGE>

appointment of a custodian, trustee, liquidator, or receiver for the Company or
such Subsidiary or for the major part of the property of either; or

                  (j) A custodian, trustee, liquidator, or receiver is appointed
for the Company or any Subsidiary or for the major part of the property of
either and is not discharged within 60 days after such appointment; or

                  (k) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against the Company or
any Subsidiary and., if instituted against the Company or any Subsidiary, are
consented to or are riot dismissed within 60 days after such institution.

                  6.2 Remedies Upon Default.

                  (a) If an Event of Default (other than described by Section
6.1(a) or Section 6.1(b))) shall occur, and for so long as such Event of Default
continues, the interest rate on this Debenture shall increase by 2% per annum
until such Event of Default is cured.

                  (b) [Reserved]

                  (c) When any Event of Default has occurred or if the holder of
any Debenture or of any other evidence of indebtedness of the Company gives any
notice or takes any other action with respect to a claimed default, the Company
agrees to give notice within three Business Days of such event to all holders of
this Debenture then outstanding.

                  6.3 Acceleration of Maturities. When any Event of Default
described in paragraph (a), (b) or (c) of Section 6.1 has occurred and is
continuing, any holder of any Debenture may, and when any Event of Default
described in paragraphs (d) through (i), inclusive, of Section 6.1 has occurred
and is continuing, the holder or holders of 50% or more of the principal amount
of this Debenture at the time outstanding may, by notice to the Company, declare
the entire principal and all interest accrued on all this Debenture to be, and
all this Debenture shall thereupon become, forthwith due and payable, without
any presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. When any Event of Default described in paragraph (j) or
(k) of Section 6.1 has occurred, then all outstanding this Debenture shall
immediately become due and payable without presentment, demand or notice of any
kind, all of which are hereby expressly waived. Upon this Debenture becoming due
and payable as a result of any Event of Default as aforesaid, the Company will
forthwith pay to the holders of this Debenture the entire principal and interest
accrued on this Debenture. No course of dealing on the pall of any Debenture
holder nor any delay or failure on the part of any Debenture holder to exercise
any right shall operate as a waiver of such right or otherwise prejudice such
holder's rights, powers and remedies. The

                                       22

<PAGE>

Company further agrees, to the fullest extent permitted by law, to pay to the
holder or holders of this Debenture all costs and expenses, including reasonable
attorneys' fees, incurred by them in the collection of any this Debenture upon
any default hereunder or thereon.

         7.       Amendments, Waivers and Consents.

                  7.1 Consent Required. Any term, covenant, agreement or
condition of this Debenture may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holders of at least 50% in aggregate principal
amount of outstanding this Debenture; provided that without the written consent
of the holders of all of this Debenture then outstanding, no such waiver,
modification, alteration or amendment shall be effective (i) which will change
the time of payment of the principal of or the interest on any Debenture or
reduce the principal amount, thereof or change the rate of interest thereon,
(ii) which will change any of the provisions with respect to optional
prepayments, or (iii) which will change the percentage of holders of this
Debenture required to consent to any such amendment modification or waiver of
any of the provisions of Section 6 or Section 7.

                  7.2 Solicitation of Debenture Holders. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any holder of this
Debenture as consideration for or as an inducement to the entering into by any
holder of this Debenture of any waiver or amendment of any of the terms and
provisions of this Debenture unless such remuneration is concurrently paid, on
the same terms, ratably to the holders of all of this Debenture then
outstanding.

                  7.3 Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the holders of this Debenture and shall be
binding upon them, upon each future holder of any Debenture, and upon the
Company, whether or not such Debenture shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereon.

         8.       Interpretation of Debenture; Definitions.

                  8.1 Definitions. As used herein,

                  "Affiliate" means any person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, the Company, (ii) which beneficially owns or holds 10% or
more of any class of the Voting Stock of the Company or (iii) 10% or more of the
Voting Stock (or in the case

                                       23

<PAGE>

of a person which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by the Company or a Subsidiary.

                  "Business Day" means any day other than a Saturday, Sunday, or
other day on which banks in Georgia are authorized to close.

                  "Change in Control" means when any person or entity, including
a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its Subsidiaries, becomes the
beneficial owner of the Company's securities having 50% or more of the combined
voting power of the then outstanding securities of the Company that may he cast
for the election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course of
business).

                  The term "control" (including the terms "controlling,"
"controlled by" and "under common control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of Voting Stock, by
contract, or otherwise.

                  "Default" means any event or condition, the occurrence of
which would, with the lapse of time or the giving of notice, or both, constitute
an Event of Default as defined in Section 6.1.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer any successor sections.

                  "Guaranties" by any person means all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (A) for the purchase or payment of such Indebtedness or obligation, (B) to
maintain working capital or other balance sheet condition or (C) otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, or (iii) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Debenture, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be

                                       24

<PAGE>

Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.

                  "Indebtedness" of any pet-son means and includes all
obligations of such person which in accordance with GAAP shall be classified
upon a balance sheet of such person as liabilities of such person, and in any
event shall include all (i) obligations of such person for borrowed money or
which have been incurred in connection with the acquisition of property or
assets, (ii) obligations secured by any lien or other charge upon property or
assets owned by such person, even though such person has not assumed or become
liable for the payment of such obligations, (iii) obligations created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such person, notwithstanding the fact that the rights and
remedies of the seller, lender or lessor under such agreement in the case of
default are limited to repossession or sale or property, (iv) capitalized
rentals, and (v) Guaranties of obligations of others of the character referred
to in this definition

                  "Investments" means all investments, in cash or by delivery of
property made, directly or indirectly in any person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.

                  "Material Adverse Event" means any event or circumstance, or
set of events or circumstances, individually or collectively, that reasonably
could be expected to result in any (i) material adverse effect upon the validity
or enforceability of this Debenture, or (ii) material and adverse effect on the
financial condition or results of operations of the Company (a "Material Adverse
Effect"), or (iii) material default or potential material default under this
Debenture.

                  "Person" means an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, and a
government or agency or political subdivision thereof.

                  "Plan" means a "pension plan," as such term is defined in
ERISA, established or maintained by the Company or any ERISA Affiliate or as to
which the Company or any ERISA Affiliate contributed or is a member or otherwise
may have any liability.

                  "Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Purchaser of even date herewith.

                                       25

<PAGE>

                  "Security" shall have the same meaning as in Section 2(l) of
the Securities Act of 1933, as amended.

                  The term "subsidiary" means, as to any particular parent
corporation, any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be owned by such parent corporation and/or one or more
corporations which are themselves subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a subsidiary of the Company.

                  "Voting Stock" means securities of any class or classes the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or persons performing similar
functions).

                  "Wholly-owned" when used in connection with any Subsidiary
shall mean a Subsidiary of which all of the issued and outstanding shares of
stock (except shares required as directors' qualifying shares shall be owned by
the Company and/or one or more of its Subsidiaries.

                  8.2 Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Debenture, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are inconsistent with the
requirements of this Debenture.

                  8.3 Directly or Indirectly. Where any provision in this
Debenture refers to action to be taken by any person, or which such person is
prohibited from taking such provision shall be applicable whether the action in
question is taken directly or indirectly by such person.

         9.       Miscellaneous.

                  9.1 Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to pay
to Purchaser so long as Purchaser holds any of this Debenture, all such expenses
relating to any amendment, waiver or consent pursuant to the provisions hereof
(whether or not the same are actually executed and delivered), including,
without limitation, any amendments, waivers or consents resulting from any
work-out, restructuring or similar proceedings relating to the performance by
the Company of its obligations under this Debenture and this Debenture. The
Company also agrees that it will pay and hold Purchaser harmless against any and
all liability with respect to stamp and other taxes, if any, which may be
payable in connection with the execution and delivery of this Debenture or this
Debenture, whether or not any this Debenture are then outstanding. The Company
agrees to protect and indemnify Purchaser against any liability for any and all
brokerage fees and commissions payable or claim to be payable to any person as a
result of any actions

                                       26

<PAGE>

of the Company or its agents in connection with the transactions contemplated by
this Debenture.

                  9.2 Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of the holder of any Debenture in the exercise of
any power or right shall operate as a waiver thereof, nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right. The rights and remedies of the holder
of any Debenture are cumulative to and are not exclusive of any rights or
remedies any such holder would otherwise have, and no waiver or consent, given
or extended hereunder, shall extend to or affect any obligation or right not
expressly waived or consented to.

                  9.3 Notices. All communications provided for hereunder shall
be in writing and shall be delivered personally, or mailed by registered mail or
by prepaid overnight air courier, or by facsimile communication, in each case
addressed:

If to Purchaser:    Wi-LAN Inc.
                    Suite 300
                    801 Manning Road, N.E.
                    Calgary, Alberta 72E 8J8
                    Attention:  Hatim Zaghloul
                    Facsimile No.:  403-273-5100

with a copy to:     Fred Davidson
                    Burnet, Duckworth & Palmer
                    First Canadian Centre
                    1400, 350 - 7th Avenue, S.W.
                    Calgary, Canada
                    Facsimile No.:  403-260-0332

If to the Company:  Digital Transmission Systems, Inc.
                    3000 Northwoods Parkway, Building 330
                    Norcross, Georgia 30071
                    Attention:  Andres C. Salazar
                    Facsimile No.:  770-798-1325

with a copy to:     Sutherland, Asbill & Brennan, L.L.P.
                    999 Peachtree Street, N.E.
                    Atlanta, Georgia 30309
                    Attention:  Mark D. Wasscrrnan
                    Facsimile No.:  404-853-8806

or such other address as Purchaser or the subsequent holder of any Debenture
initially issued to Purchaser may designate to the Company in writing, or such
other address as the Company may in writing designate to Purchaser or to a
subsequent holder of the

                                       27

<PAGE>

Debenture initially issued to Purchaser, provided, however, that a notice sent
by overnight air courier shall only be effective if delivered at a street
address designated for such purpose by such person and a notice sent by
facsimile communication shall only be effective if made by confirmed
transmission at a telephone number designated for such purpose by such person
or, in either case, as Purchaser or a subsequent holder of any this Debenture
initially issued to Purchaser may designate to the Company in writing or at a
telephone number herein set forth.

                  9.4 Assignments. This Debenture may be endorsed, assigned
and/or transferred in whole or in part by Purchaser, and any such holder and/or
assignee of the same shall succeed to and be possessed of the rights and powers
of Purchaser under all of the same to the extent transferred and assigned;
provided, however, Purchaser shall not make any such transfer to a competitor of
the Company without the prior written consent of the Company. The Company shall
not assign any of its rights nor delegate any of its duties under this Debenture
by operation of law or otherwise without the prior express written consent of
Purchaser, which may be withheld in Purchaser's sole and unfettered discretion,
and if the Company obtains such consent, this Debenture shall be binding upon
such assignee.

                  9.5 Survival of Covenants. All covenants made by the Company
and the Purchaser herein and in any instruments or certificates delivered
pursuant hereto shall survive the closing and the delivery of this Debenture and
this Debenture, until the termination of the Debenture which shall terminate and
be of no further force or effect upon the payment in full of the principal
amount of, all accrued but unpaid interest under, and all expenses and other
costs required to be paid by the Company under, this Debenture,

                  9.6 Severability. Should any part of this Debenture for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Debenture had been executed with the invalid or
unenforceable portion thereof eliminated and it is hereby declared the intention
of the parties hereto that they would have executed the remaining portion of
this Debenture without including therein any such part, parts or portion which
may for any reason, be hereafter declared invalid or unenforceable.

                  9.7 Governing Law. This Debenture issued and sold hereunder
shall be governed by and construed in accordance with Georgia law, without
regard to its conflicts of law rules.

                  9.8 Captions; Counterparts. The descriptive headings of the
various Sections or parts of this Debenture are for convenience only and shall
not affect the meaning or construction of any of the provisions hereof. This
Debenture may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

                                       28

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Debenture to be
executed in its corporate name by the undersigned officer, thereunto duly
authorized.

                                        DIGITAL TRANSMISSION SYSTEMS, INC.


                                        By:  /s/ Andres Salazar
                                             -------------------------------
                                             Name:   Andres Salazar
                                             Title:  Chief Executive Officer


                                       29