Unassociated Document


     

    Exhibit
      10.2

     

    THIS
      SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING
      OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
      OF
      THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED
      EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
      ACT
      OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
      THE
      SECURITIES ACT OR SUCH OTHER LAWS.

     

    6
      % CONVERTIBLE DEBENTURE

     

    Company:
      CSMG
      Technologies, Inc.

    Company
      Address: 500
      North
      Shoreline Drive, Suite 1005 North, Corpus Christi, Texas 78471

    Closing
      Date: November
      17, 2008

    Maturity
      Date: November
      30, 2011

    Principal
      Amount:
      $1,500,000

     

    CSMG
      Technologies, Inc., a Texas corporation, and any successor or resulting
      corporation by way of merger, consolidation, sale or exchange of all or
      substantially all of the assets or otherwise (the “Company”),
      for
      value received, hereby promises to pay to the Holder (as such term is
      hereinafter defined), or such other Person (as such term is hereinafter defined)
      upon order of the Holder, on the Maturity Date (as such term is hereinafter
      defined), the Principal Amount (as such term is hereinafter defined), as such
      sum may be adjusted pursuant to Article 3, and to pay interest thereon with
      such
      interest commencing to accrue as of the date hereof and payable on
      a monthly basis, commencing on the 15th
      day of the month following the month of issuance of this Debenture,
      and on
      the Maturity Date (except that, if any such date is not a Business Day, then
      such payment shall be due on the next succeeding Business Day), at the rate
      of
      six percent (6 %) per annum subject to adjustment as set forth in Section 7
      hereof (the “Interest Rate”). All interest payable on the Principal Amount of
      this Debenture shall be calculated on the basis of a year of 365 or 366 days,
      as
      the case may be, for the actual number of days (including the first day but
      excluding the last day) occurring in the period for which such interest is
      payable. Payment of interest on this Debenture shall be in cash or, at the
      option of the Holder, in shares of Common Stock of the Company valued at the
      then applicable Conversion Price (as defined herein). This Debenture may not
      be
      prepaid without the written consent of the Holder.

     

    ARTICLE
      1

    DEFINITIONS

    
       

      SECTION
        1.1  Definitions.
         The terms defined in this Article whenever used in this Debenture have the
        following respective meanings:

    

     

    (i)  “Affiliate”
      has the
      meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act
      of
      1934, as amended.

     

    
      	 	 	 
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    (ii)  “Bankruptcy
      Code”
      means
      the United States Bankruptcy Code of 1986, as amended (11 U.S.C. §§ 101
et.
      seq.).

     

    (iii)  “Business
      Day”
      means a
      day other than Saturday, Sunday or any day on which banks located in the State
      of California are authorized or obligated to close.

     

    (iv)  “Capital
      Shares”
      means
      the Common Stock and any other shares of any other class or series of capital
      stock, whether now or hereafter authorized and however designated, which have
      the right to participate in the distribution of earnings and assets (upon
      dissolution, liquidation or winding-up) of the Company.

     

    (v)       
      “Closing
      Date”
      means
      the closing date set forth in the first paragraph of this
      Debenture.

     

    (vi)  “Common
      Shares”
      or
“Common
      Stock”
      means
      shares of the Company’s Common Stock.

     

    (vii)     
      “Common
      Stock Issued at Conversion”,
      when
      used with reference to the securities deliverable upon conversion of this
      Debenture, means all Common Shares now or hereafter Outstanding and securities
      of any other class or series into which this Debenture hereafter shall have
      been
      changed or substituted, whether now or hereafter created and however
      designated.

     

    (viii)     
      “Conversion”
      or“conversion”
      means
      the repayment by the Company of the Principal Amount of this Debenture (and,
      to
      the extent the Holder elects as permitted by Section 3.1, accrued and unpaid
      interest thereon) by the delivery of Common Stock on the terms provided in
      Section 3.2, and “convert,” “converted,” “convertible”
      and like
      words shall have a corresponding meaning.

     

    (ix)        
      “Conversion
      Date”
      means
      any day on which all or any portion of the Principal Amount of this Debenture
      is
      converted in accordance with the provisions hereof.

     

    (x)         
      “Conversion
      Notice”
      means a
      written notice of conversion substantially in the form annexed hereto as
Exhibit
      A.
      

     

    (xi)        
      “Conversion
      Price”
      on any
      date of determination means the applicable price for the conversion of this
      Debenture into Common Shares on such day as set forth in Section
      3.1(a).

     

    (xii)  “Current
      Market Price”
      on any
      date of determination means the closing price of a Common Share on such day
      as
      reported in the “pink sheets” through the Interdealer Trading Quotation System;
      provided, if such security is not traded on the over the counter market via
      the
      pink sheets, then the closing price on the OTC Bulletin Board (the “OTCBB”);
      provided
      further,
      that,
      if such security is not listed or admitted to trading on the OTCBB, as reported
      on the principal national security exchange or quotation system on which such
      security is quoted or listed or admitted to trading, or, if not quoted or listed
      or admitted to trading on any national securities exchange or quotation system,
      the closing bid price of such security on the over-the-counter market on the
      day
      in question as reported by Bloomberg LP or a similar generally accepted
      reporting service, as the case may be.

    
      
         

        
          	 	 	 
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    (xiii)      
      “Debenture”
      or
      “Debentures”
      means
      this Convertible Debenture of the Company or such other convertible debenture(s)
      exchanged therefor as provided in Section 2.1.

     

    (xiv)  “Discount
      Multiplier”
has
      the
      meaning set forth in Section 3.1(a).

     

    (xv)       
      “Event
      of Default”
      has the
      meaning set forth in Section 6.1.

     

    (xvi)  “Excluded
      Securities”
      means,
      (a) shares issued or deemed to have been issued by the Company pursuant to
      a
      stock compensation plan that has been approved by a majority of independent
      members of the Board of Directors of the Company or by a committee, the majority
      of whose members are independent, pursuant to which the Company’s securities may
      be issued only to any employee, officer, or director for services provided
      to
      the Company (an “Approved Stock Plan”) (b) shares of Common Stock issued or
      deemed to be issued by the Company upon the conversion, exchange or exercise
      of
      any right, option, obligation or security outstanding on the date prior to
      date
      of the Securities Purchase Agreement, (c) shares or convertible securities
      issued in connection with any acquisition by the Company from a non-affiliated
      third party, whether through an acquisition of stock or a merger of any
      business, assets or technologies, leasing arrangement or any other transaction
      the primary purpose of which is not to raise equity capital, (d) shares or
      convertible securities issued to banks or equipment lessors in connection with
      a
      financing arrangement, (e) the shares of Common Stock issued or deemed to be
      issued by the Company upon conversion of this Debenture, (f) shares of Common
      Stock issued upon conversion of convertible debt where the conversion price
      of
      such debt is fixed at a value above the Current Market Price immediately prior
      to its issuance, (g) shares of common stock and preferred stock issued by the
      Company’s subsidiary, Live Tissue Connect, Inc., in connection with an initial
      public offering that is registered with the SEC and financing involving Jesup
      & Lamont Securities Corporation as underwriter and placement
      agent.

     

    (xvii)  “Holder”
      means La
      Jolla Cove Investors, Inc., any successor thereto, or any Person to whom this
      Debenture is subsequently transferred in accordance with the provisions
      hereof.

     

    (xviii)     
      “Interest
      Payment Due Date”
      means
      any date upon which interest is due to be paid by the Company to the Holder,
      as
      set forth in the opening paragraph of this Debenture.

     

    (xix)      
       “Market
      Disruption Event”
      means
      any event that results in a material suspension or limitation of trading of
      the
      Common Shares.

     

    (xx)        
      “Maturity
      Date”
      means
      the maturity date set forth in the first paragraph of this
      Debenture.

     

    (xxi)       
      “Maximum
      Rate”
      has the
      meaning set forth in Section 6.4.

    
       

      
        	 	 	 
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    (xxii)  “Outstanding”
      when
      used with reference to Common Shares or Capital Shares (collectively,
“Shares”)
      means,
      on any date of determination, all issued and outstanding Shares, and includes
      all such Shares issuable in respect of outstanding scrip or any certificates
      representing fractional interests in such Shares; provided,
      however,
      that
      any such Shares directly or indirectly owned or held by or for the account
      of
      the Company or any Subsidiary of the Company shall not be deemed “Outstanding”
      for
      purposes hereof.

     

    (xxiii)  “Person”
      means an
      individual, a corporation, a partnership, an association, a limited liability
      company, an unincorporated business organization, a trust or other entity or
      organization, and any government or political subdivision or any agency or
      instrumentality thereof.

     

    (xxiv)  “Principal
      Amount”
      means,
      for any date of calculation, the principal sum set forth in the first paragraph
      of this Debenture (including all amounts represented by (a) any cash advances
      made by Holder to the Company and (b) the principal amount of the Promissory
      Note delivered to the Company by the Holder) and for which Holder has not
      theretofore furnished a Conversion Notice in compliance with Section
      3.2.

     

    (xxv)       
      “Promissory
      Note”
      means
      that certain Secured Promissory Note in the principal amount of $1,375,000
      of
      even date herewith issued by La Jolla Cove Investors, Inc. to CSMG Technologies,
      Inc., as the same may be amended from time to time.

     

    (xxvi)       
      “SEC”
      means
      the United States Securities and Exchange Commission.

     

    (xxvii)  “Securities
      Act”
      means
      the Securities Act of 1933, as amended, and the rules and regulations of the
      SEC
      thereunder, all as in effect at the time.

     

    (xxviii)  “Securities
      Purchase Agreement”
      means
      that certain Securities Purchase Agreement of even date herewith by and among
      the Company and Holder, as the same may be amended from time to
      time.

     

    (xxix)        
      “Subsidiary”
      means
      any entity of which securities or other ownership interests having ordinary
      voting power to elect a majority of the board of directors or other persons
      performing similar functions are owned directly or indirectly by the
      Company.

     

    (xxx)         
      “Trading
      Day”
      means a
      day on which the Common Stock is traded on a Trading Market.

     

    (xxxi)        
      “Trading
      Market”
      means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the Nasdaq Capital Market, the American
      Stock Exchange, the New York Stock Exchange, the Nasdaq Global Market or the
      OTC
      Bulletin Board.

     

    (xxxii)        
      “Volume
      Weighted Average Price”
      means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the primary Trading Market on which the Common
      Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based
      on
      a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
      function; (b) if the Common Stock is not then listed or quoted on the Trading
      Market and if prices for the Common Stock are then reported in the “Pink Sheets”
published by the Pink Sheets, LLC (or a similar organization or agency
      succeeding to its functions of reporting prices), the most recent bid price
      per
      share of the Common Stock so reported; or (c) in all other cases, the fair
      market value of a share of Common Stock as determined by a nationally
      recognized-independent appraiser selected in good faith by Holder.

    
       

      
        	 	 	 
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    All
      references to “cash” or “$” herein means currency of the United States of
      America.

     

    ARTICLE
      2

    EXCHANGES,
      TRANSFER AND REPAYMENT

    
       

      SECTION
        2.1  Registration
        of Transfer of Debentures. 
        This Debenture, when presented for registration of transfer, shall (if so
        required by the Company) be duly endorsed, or be accompanied by a written
        instrument of transfer in form reasonably satisfactory to the Company duly
        executed, by the Holder duly authorized in writing.

       

      SECTION
        2.2  Loss,
        Theft, Destruction of Debenture. 
        Upon receipt of evidence satisfactory to the Company of the loss, theft,
        destruction or mutilation of this Debenture and, in the case of any such
        loss,
        theft or destruction, upon receipt of indemnity or security reasonably
        satisfactory to the Company, or, in the case of any such mutilation, upon
        surrender and cancellation of this Debenture, the Company shall make, issue
        and
        deliver, in lieu of such lost, stolen, destroyed or mutilated Debenture,
        a new
        Debenture of like tenor and unpaid Principal Amount dated as of the date
        hereof
        (which shall accrue interest from the most recent Interest Payment Due Date
        on
        which an interest payment was made in full). This Debenture shall be held
        and
        owned upon the express condition that the provisions of this Section 2.2
        are
        exclusive with respect to the replacement of a mutilated, destroyed, lost
        or
        stolen Debenture and shall preclude any and all other rights and remedies
        notwithstanding any law or statute existing or hereafter enacted to the contrary
        with respect to the replacement of negotiable instruments or other securities
        without the surrender thereof.

       

      SECTION
        2.3  Who
        Deemed Absolute Owner. 
        The Company may deem the Person in whose name this Debenture shall be registered
        upon the registry books of the Company to be, and may treat it as, the absolute
        owner of this Debenture (whether or not this Debenture shall be overdue)
        for the
        purpose of receiving payment of or on account of the Principal Amount of
        this
        Debenture, for the conversion of this Debenture and for all other purposes,
        and
        the Company shall not be affected by any notice to the contrary. All such
        payments and such conversions shall be valid and effectual to satisfy and
        discharge the liability upon this Debenture to the extent of the sum or sums
        so
        paid or the conversion or conversions so made.

       

      SECTION
        2.4  Repayment
        at Maturity. 
        At the Maturity Date, the Company shall repay the outstanding Principal Amount
        of this Debenture in whole in cash, together with all accrued and unpaid
        interest thereon, in cash, to the Maturity Date. 

    

    
      
         

        
          	 	 	 
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    ARTICLE
      3

    CONVERSION
      OF DEBENTURE

    
       

      SECTION
        3.1  Conversion;
        Conversion Price.
        

    

     

    At
      the
      option of the Holder, this Debenture may be converted, either in whole or in
      part, up to the full Principal Amount hereof into Common Shares (calculated
      as
      to each such conversion to the nearest 1/100th of a share), at any time and
      from
      time to time on any Business Day, subject to compliance with Section 3.2. The
      number of Common Shares into which this Debenture may be converted is equal
      to
      the dollar amount of the Debenture being converted divided by the Conversion
      Price. The “Conversion
      Price”
      shall be
      equal to the lesser of (i) $2.10, or (ii) 80% of the average of the 3 lowest
      Volume Weighted Average Prices during the 18 Trading Days prior to Holder’s
      election to convert (the percentage figure being a “Discount
      Multiplier”).
      The
      Company reserves the right to increase the number of Trading Days in clause
      (ii)
      above, as it deems appropriate.

     

    If
      the
      Holder elects to convert a portion of the Debenture and, on the day that the
      election is made, the Volume Weighted Average Price per share of the Company’s
      Common Stock is below $0.38 (the “Floor
      Price”),
      subject to adjustment as set forth in Section 3.7, the Company shall have the
      right, within two (2) Business Days after the Company’s receipt of such
      Conversion Notice, to prepay that portion of the Debenture that Holder elected
      to convert, plus any accrued and unpaid interest, at 118% of such amount. In
      the
      event that the Company fails to prepay such portion of the Debenture by the
      delivery of such cash prepayment amount to Holder within two (2) Business Days
      after the Company’s receipt of such Conversion Notice, the Company shall no
      longer have the right to prepay such portion of the Debenture in lieu of
      honoring the Conversion Notice and shall issue to Holder the applicable Common
      Stock Issued at Conversion set forth in the Conversion Notice under the terms
      of
      this Debenture. In the event that the Company elects to prepay that portion
      of
      the Debenture, Holder shall have the right to withdraw its Conversion Notice.
      

     

    SECTION
      3.2  Exercise
      of Conversion Privilege. 
      (i) Conversion of this Debenture may be exercised on any Business Day by the
      Holder by telecopying an executed and completed Conversion Notice to the
      Company. Each date on which a Conversion Notice is telecopied to the Company
      in
      accordance with the provisions of this Section 3.2 shall constitute a Conversion
      Date. The Company shall convert this Debenture and issue the Common Stock Issued
      at Conversion in the manner provided below in this Section 3.2, and all voting
      and other rights associated with the beneficial ownership of the Common Stock
      Issued at Conversion shall vest with the Holder, effective as of the Conversion
      Date at the time specified in the Conversion Notice. The Conversion Notice
      also
      shall state the name or names (with addresses) of the persons who are to become
      the holders of the Common Stock Issued at Conversion in connection with such
      conversion. As promptly as practicable after the receipt of the Conversion
      Notice as aforesaid, but in any event not more than two (2) Business Days after
      the Company’s receipt of such Conversion Notice, the Company shall (a) issue the
      Common Stock Issued at Conversion in accordance with the provisions of this
      Article 3 and (b) cause to be mailed for delivery by overnight courier (x)
      a
      certificate or certificate(s) representing the number of Common Shares to which
      the Holder is entitled by virtue of such conversion and (y) cash, as provided
      in
      Section 3.3, in respect of any fraction of a Common Share deliverable upon
      such
      conversion. Such conversion shall be deemed to have been effected at the time
      at
      which the Conversion Notice indicates, and at such time the rights of the Holder
      of this Debenture, as such (except if and to the extent that any Principal
      Amount thereof remains unconverted), shall cease and the Person and Persons
      in
      whose name or names the Common Stock Issued at Conversion shall be issuable
      shall be deemed to have become the holder or holders of record of the Common
      Shares represented thereby, and all voting and other rights associated with
      the
      beneficial ownership of such Common Shares shall at such time vest with such
      Person or Persons. The Conversion Notice shall constitute a contract between
      the
      Holder and the Company, whereby the Holder shall be deemed to subscribe for
      the
      number of Common Shares which it will be entitled to receive upon such
      conversion and, in payment and satisfaction of such subscription (and for any
      cash adjustment to which it is entitled pursuant to Section 3.4), to surrender
      this Debenture and to release the Company from all liability thereon (except
      if
      and to the extent that any Principal Amount thereof remains unconverted). No
      cash payment aggregating less than $1.00 shall be required to be given unless
      specifically requested by the Holder.

    
       

      
        	 	 	 
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    (ii)  If,
      at
      any time after the date of this Debenture, (a) the Company challenges, disputes
      or denies the right of the Holder hereof to effect the conversion of this
      Debenture into Common Shares or otherwise dishonors or rejects any Conversion
      Notice delivered in accordance with this Section 3.2 or (b) any third party
      who
      is not and has never been an Affiliate of the Holder commences any lawsuit
      or
      legal proceeding or otherwise asserts any claim before any court or public
      or
      governmental authority which seeks to challenge, deny, enjoin, limit, modify,
      delay or dispute the right of the Holder hereof to effect the conversion of
      this
      Debenture into Common Shares, then the Holder shall have the right, but not
      the
      obligation, by written notice to the Company, to require the Company to promptly
      redeem this Debenture for cash at one hundred eighteen percent (118%) of the
      Principal Amount thereof, together with all accrued and unpaid interest thereon
      to the date of redemption. Under any of the circumstances set forth above,
      the
      Company shall be responsible for the payment of all costs and expenses of the
      Holder, including reasonable legal fees and expenses, as and when incurred
      in
      defending itself in any such action or pursuing its rights hereunder (in
      addition to any other rights of the Holder).

     

    (iii)  The
      Holder shall be entitled to exercise its conversion privilege notwithstanding
      the commencement of any case under the Bankruptcy Code. In the event the Company
      is a debtor under the Bankruptcy Code, the Company hereby waives to the fullest
      extent permitted any rights to relief it may have under 11 U.S.C. § 362 in
      respect of the Holder’s conversion privilege. The Company hereby waives to the
      fullest extent permitted any rights to relief it may have under 11 U.S.C. § 362
      in respect of the conversion of this Debenture. The Company agrees, without
      cost
      or expense to the Holder, to take or consent to any and all action necessary
      to
      effectuate relief under 11 U.S.C. § 362.

    
       

      SECTION
        3.3  Fractional
        Shares. 
        No fractional Common Shares or scrip representing fractional Common Shares
        shall
        be delivered upon conversion of this Debenture. Instead of any fractional
        Common
        Shares which otherwise would be delivered upon conversion of this Debenture,
        the
        Company shall pay a cash adjustment in respect of such fraction in an amount
        equal to the same fraction multiplied by the Current Market Price on the
        Conversion Date. No cash payment of less than $1.00 shall be required to
        be
        given unless specifically requested by the Holder.

      
         

        
          	 	 	 
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      SECTION
        3.4  Adjustments. 
        The Conversion Price and the number of shares deliverable upon conversion
        of
        this Debenture are subject to adjustment from time to time as
        follows:

    

     

    (i)  Reclassification,
      Etc.
       In case the Company shall reorganize its capital, reclassify its capital
      stock, consolidate or merge with or into another Person (where the Company
      is
      not the survivor or where there is a change in or distribution with respect
      to
      the Common Stock of the Company), sell, convey, transfer or otherwise dispose
      of
      all or substantially all its property, assets or business to another Person,
      or
      effectuate a transaction or series of related transactions in which more than
      fifty percent (50%) of the voting power of the Company is disposed of (each,
      a
“Fundamental
      Corporate Change”)
      and,
      pursuant to the terms of such Fundamental Corporate Change, shares of common
      stock of the successor or acquiring corporation, or any cash, shares of stock
      or
      other securities or property of any nature whatsoever (including warrants or
      other subscription or purchase rights) in addition to or in lieu of common
      stock
      of the successor or acquiring corporation (“Other
      Property”)
      are to
      be received by or distributed to the holders of Common Stock of the Company,
      then the Holder of this Debenture shall have the right thereafter, at its sole
      option, to (x) require the Company to prepay this Debenture for cash at one
      hundred eighteen percent (118%) of the Principal Amount thereof, together with
      all accrued and unpaid interest thereon to the date of prepayment,
      (y) receive the number of shares of common stock of the successor or
      acquiring corporation or of the Company, if it is the surviving corporation,
      and
      Other Property as is receivable upon or as a result of such
      Fundamental Corporate Change by a holder of the number of shares of Common
      Stock
      into which the outstanding portion of this Debenture may be converted at the
      Conversion Price applicable immediately prior to such Fundamental Corporate
      Change, or (z) require the Company, or such successor, resulting or
      purchasing corporation, as the case may be, to, without benefit of any
      additional consideration therefor, execute and deliver to the Holder a debenture
      with substantial identical rights, privileges, powers, restrictions and other
      terms as this Debenture in an amount equal to the amount outstanding under
      this
      Debenture immediately prior to such Fundamental Corporate Change. For purposes
      hereof, “common
      stock of the successor or acquiring corporation”
      shall
      include stock of such corporation of any class which is not preferred as to
      dividends or assets over any other class of stock of such corporation and which
      is not subject to prepayment and shall also include any evidences of
      indebtedness, shares of stock or other securities which are convertible into
      or
      exchangeable for any such stock, either immediately or upon the arrival of
      a
      specified date or the happening of a specified event and any warrants or other
      rights to subscribe for or purchase any such stock. The foregoing provisions
      shall similarly apply to successive Fundamental Corporate Changes. 

    
      
         

        
          	 	 	 
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      SECTION
        3.5  Certain
        Conversion Limits.

    

     

    The
      Company shall not effect any conversion of this Debenture, and a Holder shall
      not have the right to convert any portion of this Debenture, to the extent
      that
      after giving effect to the conversion, as set forth on the applicable Conversion
      Notice, such Holder (together with such Holder’s Affiliates, and any other
      person or entity acting as a group together with such Holder or any of such
      Holder’s Affiliates) would beneficially own in excess of the Beneficial
      Ownership Limitation (as defined below). For purposes of the foregoing sentence,
      the number of shares of Common Stock beneficially owned by such Holder and
      its
      Affiliates shall include the number of shares of Common Stock issuable upon
      conversion of this Debenture with respect to which such determination is being
      made, but shall exclude the number of shares of Common Stock which are issuable
      upon (A) conversion of the remaining, unconverted principal amount of this
      Debenture beneficially owned by such Holder or any of its Affiliates and (B)
      exercise or conversion of the unexercised or unconverted portion of any other
      securities of the Company subject to a limitation on conversion or exercise
      analogous to the limitation contained herein (including, without limitation,
      any
      other Debentures or warrants to purchase shares of the Company’s Common Stock)
      beneficially owned by such Holder or any of its Affiliates. Except as set forth
      in the preceding sentence, for purposes of this Section 3.5, beneficial
      ownership shall be calculated in accordance with Section 13(d) of the Exchange
      Act and the rules and regulations promulgated thereunder. To the extent that
      the
      limitation contained in this Section 3.5 applies, the determination of whether
      this Debenture is convertible (in relation to other securities owned by such
      Holder together with any Affiliates) and of which principal amount of this
      Debenture is convertible shall be in the sole discretion of such Holder, and
      the
      submission of a Conversion Notice shall be deemed to be such Holder’s
      determination of whether this Debenture may be converted (in relation to other
      securities owned by such Holder together with any Affiliates) and which
      principal amount of this Debenture is convertible, in each case subject to
      such
      aggregate percentage limitations. To ensure compliance with this restriction,
      each Holder will be deemed to represent to the Company each time it delivers
      a
      Conversion Notice that such Conversion Notice has not violated the restrictions
      set forth in this paragraph and the Company shall have no obligation to verify
      or confirm the accuracy of such determination. In addition, a determination
      as
      to any group status as contemplated above shall be determined in accordance
      with
      Section 13(d) of the Exchange Act and the rules and regulations promulgated
      thereunder. For purposes of this Section 3.5, in determining the number of
      outstanding shares of Common Stock, a Holder may rely on the number of
      outstanding shares of Common Stock provided to the Holder in writing by the
      Company after Holder makes such request or in the event that the Company files,
      any of the following with the Securities and Exchange Commission, the most
      recent of the following: (A) the Company's most recent Form 10-Q or Form 10-K,
      as the case may be, (B) a more recent public announcement by the Company; or
      (C)
      a more recent notice by the Company or the Company’s transfer agent setting
      forth the number of shares of Common Stock outstanding. Upon the written or
      oral
      request of a Holder, the Company shall within two Trading Days confirm orally
      and in writing to such Holder the number of shares of Common Stock then
      outstanding on the records of the Company as of the date of the request. In
      any
      case, the number of outstanding shares of Common Stock shall be determined
      after
      giving effect to the conversion or exercise of securities of the Company,
      including this Debenture, by such Holder or its Affiliates since the date as
      of
      which such number of outstanding shares of Common Stock was reported. The
“Beneficial
      Ownership Limitation”
shall
      be 4.99% of the number of shares of the Common Stock outstanding immediately
      after giving effect to the issuance of shares of Common Stock issuable upon
      conversion of this Debenture held by the Holder. The Beneficial Ownership
      Limitation provisions of this Section 3.5 may be waived by such Holder, at
      the
      election of such Holder, upon not less than 61 days’ prior notice to the
      Company, to, at the sole discretion of the Holder, either change the Beneficial
      Ownership Limitation to (i) 9.99% of the number of shares of the Common Stock
      outstanding immediately after giving effect to the issuance of shares of Common
      Stock upon conversion of the Debenture held by the Holder and the provisions
      of
      this Section 3.5 shall continue to apply, or (ii) remove any Beneficial
      Ownership Limitation under this Debenture. The provisions of this paragraph
      shall be construed and implemented in a manner otherwise than in strict
      conformity with the terms of this Section 3.5 to correct this paragraph (or
      any
      portion hereof) which may be defective or inconsistent with the intended
      Beneficial Ownership Limitation herein contained or to make changes or
      supplements necessary or desirable to properly give effect to such limitation.
      If any court of competent jurisdiction shall determine that the foregoing
      limitation is ineffective to prevent a Holder from being deemed the beneficial
      owner of more than 9.99% of the then outstanding shares of Common Stock, then
      the Company shall prepay such portion of this Debenture as shall cause such
      Holder not to be deemed the beneficial owner of more than 9.99% of the then
      outstanding shares of Common Stock. Upon such determination by a court of
      competent jurisdiction, the Holder shall have no interest in or rights under
      such portion of the Debenture. Any and all interest paid on or prior to the
      date
      of such determination shall be deemed interest paid on the remaining portion
      of
      this Debenture held by the Holder. Such prepayment shall be for cash at a
      prepayment price of one hundred eighteen percent (118%) of the Principal Amount
      thereof, together with all accrued and unpaid interest thereon to the date
      of
      prepayment. The limitations contained in this paragraph shall apply to a
      successor holder of this Debenture.

    
       

      
        	 	 	 
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      SECTION
        3.6  Surrender
        of Debentures. 
        Upon any redemption of this Debenture pursuant to Sections 3.2, 3.5 or 6.2,
        or
        upon maturity pursuant to Section 2.4, the Holder shall either deliver this
        Debenture by hand to the Company at its principal executive offices or surrender
        the same to the Company at such address by nationally recognized overnight
        courier. Payment of the redemption price or the amount due on maturity specified
        in Section 2.4, shall be made by the Company to the Holder against receipt
        of
        this Debenture (as provided in this Section 3.5) by wire transfer of immediately
        available funds to such account(s) as the Holder shall specify by written
        notice
        to the Company. If payment of such redemption price is not made in full by
        the
        redemption date, or the amount due on maturity is not paid in full by the
        Maturity Date, the Holder shall again have the right to convert this Debenture
        as provided in Article 3 hereof or to declare an Event of Default.

       

      SECTION
        3.7  Adjustments
        to Floor Price 

    

     

    (i)  Adjustment
      of Floor Price upon Issuance of Common Stock.
       If the Company, at any time while this Debenture is outstanding, issues or
      sells, or in accordance with this Section 3.7(i) is deemed to have issued or
      sold, any shares of Common Stock, excluding shares of Common Stock deemed to
      have been issued or sold by the Company in connection with any Excluded
      Securities, for a consideration per share (the “New
      Issuance Price”)
      less
      than a price equal to the Floor Price in effect immediately prior to such issue
      or sale (such price the “Applicable
      Price”)
      (the
      foregoing a “Dilutive
      Issuance”),
      then
      immediately after such Dilutive Issuance the Floor Price then in effect shall
      be
      reduced to an amount equal to 95% of the New Issuance Price. For purposes of
      determining the adjusted Floor Price under this Section 3.7(i), the following
      shall be applicable: 

     

    (A)  Issuance
      of Options. 
      If the Company in any manner grants or sells any rights, warrants or options
      to
      subscribe for or purchase shares of Common Stock or any stock or securities
      (other than Options) directly or indirectly convertible into or exercisable
      or
      exchangeable for Common Stock (“Convertible
      Securities”)
      (“Options”)
      and
      the lowest price per share for which one share of Common Stock is issuable
      upon the exercise of any such Option or upon conversion or exchange or exercise
      of any Convertible Securities issuable upon exercise of such Option is less
      than
      the Applicable Price, then such share of Common Stock shall be deemed to be
      outstanding and to have been issued and sold by the Company at the time of
      the
      granting or sale of such Option for such price per share. For purposes of this
      Section, the “lowest price per share for which one share of Common Stock is
      issuable upon the exercise of any such Option or upon conversion or exchange
      or
      exercise of any Convertible Securities issuable upon exercise of such Option”
shall be equal to the sum of the lowest amounts of consideration (if any)
      received or receivable by the Company with respect to any one share of Common
      Stock upon granting or sale of the Option, upon exercise of the Option and
      upon
      conversion or exchange or exercise of any Convertible Security issuable upon
      exercise of such Option. No further adjustment of the Floor Price shall be
      made
      upon the actual issuance of such share of Common Stock or of such Convertible
      Securities upon the exercise of such Options or upon the actual issuance of
      such
      Common Stock upon conversion or exchange or exercise of such Convertible
      Securities. 

    
       

      
        	 	 	 
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    (B)  Issuance
      of Convertible Securities. 
      If the Company in any manner issues or sells any Convertible Securities and
      the
      lowest price per share for which one share of Common Stock is issuable upon
      such
      conversion or exchange or exercise thereof is less than the Applicable Price,
      then such share of Common Stock shall be deemed to be outstanding and to have
      been issued and sold by the Company at the time of the issuance or sale of
      such
      Convertible Securities for such price per share. For the purposes of this
      Section, the “lowest price per share for which one share of Common Stock is
      issuable upon such conversion or exchange or exercise” shall be equal to the sum
      of the lowest amounts of consideration (if any) received or receivable by the
      Company with respect to any one share of Common Stock upon the issuance or
      sale
      of the Convertible Security and upon the conversion or exchange or exercise
      of
      such Convertible Security. No further adjustment of the Floor Price shall be
      made upon the actual issuance of such share of Common Stock upon conversion
      or
      exchange or exercise of such Convertible Securities, and if any such issue
      or
      sale of such Convertible Securities is made upon exercise of any Options for
      which adjustment of the Floor Price had been or are to be made pursuant to
      other
      provisions of this Section, no further adjustment of the Floor Price shall
      be
      made by reason of such issue or sale. 

     

    (C)  Change
      in Option Price or Rate of Conversion. 
      If the purchase price provided for in any Options, the additional consideration,
      if any, payable upon the issue, conversion, exchange or exercise of any
      Convertible Securities, or the rate at which any Convertible Securities are
      convertible into or exchangeable or exercisable for Common Stock changes at
      any
      time, the Floor Price in effect at the time of such change shall be adjusted
      to
      the Floor Price which would have been in effect at such time had such Options
      or
      Convertible Securities provided for such changed purchase price, additional
      consideration or changed conversion rate, as the case may be, at the time
      initially granted, issued or sold. For purposes of this Section, if the terms
      of
      any Option or Convertible Security that was outstanding as of the Closing Date
      are changed in the manner described in the immediately preceding sentence,
      then
      such Option or Convertible Security and the Common Stock deemed issuable upon
      exercise, conversion or exchange thereof shall be deemed to have been issued
      as
      of the date of such change. No adjustment shall be made if such adjustment
      would
      result in an increase of the Floor Price then in effect. 

    
       

      
        	 	 	 
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    (D)  Calculation
      of Consideration Received. 
      In case any Option is issued in connection with the issue or sale of other
      securities of the Company, together comprising one integrated transaction in
      which no specific consideration is allocated to such Options by the parties
      thereto, the Options will be deemed to have been issued for the difference
      of
      (x) the aggregate fair market value of such Options and other securities issued
      or sold in such integrated transaction, less (y) the fair market value of the
      securities other than such Option, issued or sold in such transaction and the
      other securities issued or sold in such integrated transaction will be deemed
      to
      have been issued or sold for the balance of the consideration received by the
      Company. If any Common Stock, Options or Convertible Securities are issued
      or
      sold or deemed to have been issued or sold for cash, the consideration received
      therefor will be deemed to be the gross amount raised by the Company; provided,
      however, that such gross amount is not greater than 110% of the net amount
      received by the Company therefor. If any Common Stock, Options or Convertible
      Securities are issued or sold for a consideration other than cash, the amount
      of
      the consideration other than cash received by the Company will be the fair
      value
      of such consideration, except where such consideration consists of securities,
      in which case the amount of consideration received by the Company will be the
      price per share in the last reported trade of the Common Stock on Trading Market
      (the “Closing
      Bid Price”)
      of such securities on the date of receipt. If any Common Stock, Options or
      Convertible Securities are issued to the owners of the non-surviving entity
      in
      connection with any merger in which the Company is the surviving entity, the
      amount of consideration therefor will be deemed to be the fair value of such
      portion of the net assets and business of the non-surviving entity as is
      attributable to such Common Stock, Options or Convertible Securities, as the
      case may be. The fair value of any consideration other than cash or securities
      will be determined jointly by the Company and the Holder. If such parties are
      unable to reach agreement within ten (10) days after the occurrence of an event
      requiring valuation (the “Valuation
      Event”),
      the fair value of such consideration will be determined within five (5) Business
      Days after the tenth (10 th
      )
      day following the Valuation Event by an independent, reputable appraiser jointly
      selected by the Company and the Holder. The determination of such appraiser
      shall be deemed binding upon all parties absent manifest error and the fees
      and
      expenses of such appraiser shall be borne by the Company. 

     

    (E)  Record
      Date.
       If the Company takes a record of the holders of Common Stock for the
      purpose of entitling them (x) to receive a dividend or other distribution
      payable in Common Stock, Options or in Convertible Securities or (y) to
      subscribe for or purchase Common Stock, Options or Convertible Securities,
      then
      such record date will be deemed to be the date of the issue or sale of the
      Common Stock deemed to have been issued or sold upon the declaration of such
      dividend or the making of such other distribution or the date of the granting
      of
      such right of subscription or purchase, as the case may be. 

     

    (ii)  Adjustment
      of Floor Price upon Subdivision or Combination of Common Stock. 
      If the Company, at any time while this Debenture is outstanding, shall (a)
      pay a
      stock dividend or otherwise make a distribution or distributions on shares
      of
      its Common Stock or any other equity or equity equivalent securities payable
      in
      shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
      a
      larger number of shares, (c) combine (including by way of reverse stock split)
      outstanding shares of Common Stock into a smaller number of shares, or (d)
      issue
      by reclassification of shares of the Common Stock any shares of capital stock
      of
      the Company, then the Floor Price shall be multiplied by a fraction of
which
      the
      numerator shall be the number of shares of Common Stock (excluding treasury
      shares, if any) outstanding before such event and of which the denominator
      shall
      be the number of shares of Common Stock outstanding after such event. Any
      adjustment made pursuant to this Section shall become effective immediately
      after the record date for the determination of stockholders entitled to receive
      such dividend or distribution and shall become effective immediately after
      the
      effective date in the case of a subdivision, combination or re-classification.
      

    
       

      
        	 	 	 
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    (iii)  Other
      Events. 
      If any event occurs of the type contemplated by the provisions of this Section
      3.7 but not expressly provided for by such provisions (including, without
      limitation, the granting of stock appreciation rights, phantom stock rights
      or
      other rights with equity features), then the Company's Board of Directors will
      make an appropriate adjustment in the Floor Price so as to protect the rights
      of
      the Holder under this Debenture; provided that no such adjustment will increase
      the Floor Price as otherwise determined pursuant to this Section 3.7.


     

    (iv)  Whenever
      the Floor Price is adjusted pursuant to this Section 3.7 hereof, the Company
      shall promptly mail to the Holder a notice setting forth the Floor Price after
      such adjustment and setting forth a brief statement of the facts requiring
      such
      adjustment. 

     

    ARTICLE
      4

    STATUS;
      RESTRICTIONS ON TRANSFER

    
       

      SECTION
        4.1  Status
        of Debenture.
         This Debenture constitutes a legal, valid and binding obligation of the
        Company, enforceable in accordance with its terms subject, as to enforceability,
        to general principles of equity and to principles of bankruptcy, insolvency,
        reorganization and other similar laws of general applicability relating to
        or
        affecting creditors’ rights and remedies generally.

       

      SECTION
        4.2  Restrictions
        on Transfer. 
        This Debenture, and any Common Shares deliverable upon the conversion hereof,
        have not been registered under the Securities Act. The Holder by accepting
        this
        Debenture agrees that this Debenture and the shares of Common Stock to be
        acquired as interest on and upon conversion of this Debenture may not be
        assigned or otherwise transferred unless and until (i) the Company has received
        the opinion of counsel for the Holder that this Debenture or such shares
        may be
        sold pursuant to an exemption from registration under the Securities Act,
        provided that the Company will not require opinions of counsel for transactions
        involving transfers to Affiliates of the Holder or pursuant to Rule 144
        promulgated by the SEC under the Securities Act, except in unusual
        circumstances, or (ii) a registration statement relating to this Debenture
        or
        such shares has been filed by the Company and declared effective by the SEC.
        

    

     

    Each
      certificate for shares of Common Stock deliverable hereunder shall bear a legend
      as follows unless and until such securities have been sold pursuant to an
      effective registration statement under the Securities Act:

     

    “The
      securities represented by this certificate have not been registered under the
      Securities Act of 1933, as amended (the “Securities Act”). The securities may
      not be offered for sale, sold or otherwise transferred except (i) pursuant
      to an
      effective registration statement under the Securities Act or (ii) pursuant
      to an
      exemption from registration under the Securities Act in respect of which the
      issuer of this certificate has received an opinion of counsel reasonably
      satisfactory to the issuer of this certificate to such effect unless sold
      pursuant to Rule 144 under the Securities Act. Copies of the agreement covering
      both the purchase of the securities and restrictions on their transfer may
      be
      obtained at no cost by written request made by the holder of record of this
      certificate to the Secretary of the issuer of this certificate at the principal
      executive offices of the issuer of this certificate.”

    
       

      
        	 	 	 
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    ARTICLE
      5

    COVENANTS

    
       

      SECTION
        5.1  Conversion. 
        The Company shall cause the transfer agent, not later than two (2) Business
        Days
        after the Company’s receipt of a Conversion Notice, to issue and deliver to the
        Holder the requisite shares of Common Stock Issued at Conversion. 

       

      SECTION
        5.2  Notice
        of Default. 
        If any one or more events occur which constitute or which, with notice, lapse
        of
        time, or both, would constitute an Event of Default, the Company shall forthwith
        give notice to the Holder, specifying the nature and status of the Event
        of
        Default or such other event(s), as the case may be.

       

      SECTION
        5.3  Payment
        of Obligations. 
        So long as this Debenture shall be outstanding, the Company shall pay, extend,
        or discharge at or before maturity, all its respective material obligations
        and
        liabilities, including, without limitation, tax liabilities, except where
        the
        same may be contested in good faith by appropriate proceedings.

       

      SECTION
        5.4  Compliance
        with Laws. 
        So long as this Debenture shall be outstanding, the Company shall comply
        with
        all applicable laws, ordinances, rules, regulations and requirements of
        governmental authorities, except for such noncompliance which would not have
        a
        material adverse effect on the business, properties, prospects, condition
        (financial or otherwise) or results of operations of the Company and the
        Subsidiaries.

       

      SECTION
        5.5  Inspection
        of Property, Books and Records.
         So long as this Debenture shall be outstanding, the Company shall keep
        proper books of record and account in which full, true and correct entries
        shall
        be made of all material dealings and transactions in relation to its business
        and activities and shall permit representatives of the Holder at the Holder’s
        expense to visit and inspect any of its respective properties, to examine
        and
        make abstracts from any of its respective books and records, not reasonably
        deemed confidential by the Company, and to discuss its respective affairs,
        finances and accounts with its respective officers and independent public
        accountants, all with at least two business days’ notice and at such reasonable
        times, within the normal business hours of the Company and as often as may
        reasonably be desired.

       

      SECTION
        5.6  Reservation
        of Stock Issuable Upon Conversion. 
        The Company shall at all times reserve and keep available out of its authorized
        but unissued shares of Common Stock, solely for the purpose of effecting
        the
        conversion of this Debenture and payment of interest by issuance of shares
        of
        Common Stock, such number of its shares of Common Stock as shall from time
        to
        time be sufficient to effect the conversion of this Debenture and payment
        of
        interest by issuance of shares of Common Stock; and if at any time the number
        of
        authorized but unissued shares of Common Stock shall not be sufficient to
        effect
        the conversion of this Debenture and payment of interest by issuance of shares
        of Common Stock, in addition to such other remedies as shall be available
        to the
        holder of this Debenture, the Company will take such corporate action as
        may, in
        the opinion of its counsel, be necessary to increase its authorized but unissued
        shares of Common Stock to such number of shares as shall be sufficient for
        such
        purposes, including, without limitation, engaging in best efforts to obtain
        the
        requisite shareholder approval to file an amendment to the charter of the
        Company.

      
         

        
          	 	 	 
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      SECTION
        5    No
        Impairment. 
        Except and to the extent waived or consented to by the Holder or as otherwise
        permitted under the terms hereof, the Company will not, by amendment of its
        Certificate of Incorporation or similar corporate charter or through any
        reorganization, transfer of assets, consolidation, merger, dissolution, issue
        or
        sale of securities or any other voluntary action, avoid or seek to avoid
        the
        observance or performance of any of the terms to be observed or performed
        hereunder by the Company, but will at all times in good faith assist in the
        carrying out of all the provisions of this Debenture and in the taking of
        all
        such action as may be necessary or appropriate in order to protect the exercise
        rights of the Holder against impairment.

       

      SECTION
        5.8  Negative
        Covenants. 
        So long as any portion of this Debenture is outstanding, the Company will
        not
        and will not permit any of its Subsidiaries to directly or
        indirectly:

    

     

     

    (i)  enter
      into, create, incur, assume or suffer to exist any indebtedness or liens of
      any
      kind, on or with respect to any of its property or assets now owned or hereafter
      acquired or any interest therein or any income or profits therefrom that is
      senior to or pari passu with, in any respect or subordinated to (unless on
      terms
      satisfactory in all respects to the Holder), the Company’s obligations under the
      Debenture;

     

    (ii)  amend
      its
      certificate of incorporation, bylaws or its charter documents so as to adversely
      affect any rights of Holder;

     

    (iii)  repay,
      repurchase or offer to repay, repurchase or otherwise acquire or make any
      dividend or distribution in respect of any of its Common Stock, Preferred Stock,
      or other equity securities other than as to the Conversion Shares to the extent
      permitted or required under the Documents (as defined in the Securities Purchase
      Agreement); 

     

    (iv)  dispose,
      in a single transaction, or in a series of transactions all or any part of
      its
      assets unless such disposal is (A) in the ordinary course of business,
      (B) for fair market value, (C) for cash and (D) approved by the
      board of directors of the Company; or

     

    (v)  enter
      into any agreement with respect to any of the foregoing.

    
       

      
        	 	 	 
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    ARTICLE
      6 

    EVENTS
      OF DEFAULT; REMEDIES

    
       

      SECTION
        6.1  Events
        of Default. 
        “Event
        of Default”
        wherever
        used herein means any one of the following events:

    

     

    (i)  (A)
      the
      Company shall default in the payment of principal of or interest on this
      Debenture as and when the same shall be due and payable and, in the case of
      an
      interest payment default, such default shall continue for five (5) Business
      Days
      after the date such interest payment was due, (B) the Company shall fail to
      deliver to Holder either the Common Stock set forth in a Conversion Notice
      submitted by the Holder or the amount of cash necessary to redeem such portion
      of the Debenture, if allowed by and subject to the terms and conditions of
      Section 3.1 of this Debenture, within two (2) Business Days after the Company’s
      receipt of such Conversion Notice, or (C) the Company shall fail to perform
      or
      observe any other covenant, agreement, term, provision, undertaking or
      commitment under this Debenture or the Securities Purchase Agreement and such
      default shall continue for a period of ten (10) Business Days after the delivery
      to the Company of written notice that the Company is in default hereunder or
      thereunder; 

     

    (ii)  any
      of
      the representations, warranties, or covenants made by the Company herein, in
      the
      Securities Purchase Agreement or in any certificate or financial or other
      written statements heretofore or hereafter furnished by or on behalf of the
      Company in connection with the execution and delivery of this Debenture or
      the
      Securities Purchase Agreement shall be false or misleading in a material respect
      on the Closing Date; 

     

    (iii)  under
      the
      laws of any jurisdiction not otherwise covered by clauses (iv) and (v) below,
      the Company or any Subsidiary (A) becomes insolvent or generally not able to
      pay
      its debts as they become due, (B) admits in writing its inability to pay its
      debts generally or makes a general assignment for the benefit of creditors,
      (C)
      institutes or has instituted against it any proceeding seeking (x) to adjudicate
      it a bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
      arrangement, adjustment, protection, relief or composition of it or its debts
      under any law relating to bankruptcy, insolvency, reorganization or relief
      of
      debtors including any plan of compromise or arrangement or other corporate
      proceeding involving or affecting its creditors or (z) the entry of an order
      for
      relief or the appointment of a receiver, trustee or other similar person for
      it
      or for any substantial part of its properties and assets, and in the case of
      any
      such official proceeding instituted against it (but not instituted by it),
      either the proceeding remains undismissed or unstayed for a period of sixty
      (60)
      calendar days, or any of the actions sought in such proceeding (including the
      entry of an order for relief against it or the appointment of a receiver,
      trustee, custodian or other similar official for it or for any substantial
      part
      of its properties and assets) occurs or (D) takes any corporate action to
      authorize any of the above actions; 

     

    (iv)  the
      entry
      of a decree or order by a court having jurisdiction in the premises adjudging
      the Company or any Subsidiary a bankrupt or insolvent, or approving as properly
      filed a petition seeking reorganization, arrangement, adjustment or composition
      of or in respect of the Company under the Bankruptcy Code or any other
      applicable Federal or state law, or appointing a receiver, liquidator, assignee,
      trustee or sequestrator (or other similar official) of the Company or of any
      substantial part of its property, or ordering the winding-up or liquidation
      of
      its affairs, and any such decree or order continues and is unstayed and in
      effect for a period of sixty (60) calendar days;

    
       

      
        	 	 	 
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        16

        
          

        

      

      
        
        

      

    

     

    (v)  the
      institution by the Company or any Subsidiary of proceedings to be adjudicated
      a
      bankrupt or insolvent, or the consent by it to the institution of bankruptcy
      or
      insolvency proceedings against it, or the filing by it of a petition or answer
      or consent seeking reorganization or relief under the Bankruptcy Code or any
      other applicable federal or state law, or the consent by it to the filing of
      any
      such petition or to the appointment of a receiver, liquidator, assignee, trustee
      or sequestrator (or other similar official) of the Company or of any substantial
      part of its property, or the making by it of an assignment for the benefit
      of
      creditors, or the admission by it in writing of its inability to pay its debts
      generally as and when they become due, or the taking of corporate action by
      the
      Company in furtherance of any such action; 

     

    (vi)  a
      final
      judgment or final judgments for the payment of money shall have been entered
      by
      any court or courts of competent jurisdiction against the Company and remains
      undischarged for a period (during which execution shall be effectively stayed)
      of thirty (30) days, provided
      that the
      aggregate amount of all such judgments at any time outstanding (to the extent
      not paid or to be paid, as evidenced by a written communication to that effect
      from the applicable insurer, by insurance) exceeds Two Hundred Thousand Dollars
      ($200,000);

     

    (vii)  it
      becomes unlawful for the Company to perform or comply with its obligations
      under
      this Debenture or the Securities Purchase Agreement in any respect;

     

    (viii)  the
      Common Shares shall no longer be traded in the over the counter market via
      the
      OTC Bulletin Board, or shall be suspended from trading on the OTC Bulletin
      Board, and shall not be reinstated, relisted or such suspension lifted, as
      the
      case may be, within five (5) days; 

     

    (ix)  the
      Company shall fail to timely file all reports required to be filed by it with
      the Commission (as defined in the Securities Purchase Agreement) pursuant to
      Section 13 or 15(d) of the Exchange Act (as defined in the Securities Purchase
      Agreement), or otherwise required by the Exchange Act; or

     

    (x)  the
      Company shall default (giving effect to any applicable grace period) in the
      payment of principal or interest as and when the same shall become due and
      payable, under any indebtedness, individually or in the aggregate, of more
      than
      Fifty Thousand Dollars ($50,000).

    
       

      SECTION
        6.   Acceleration
        of Maturity; Rescission and Annulment. 
        If an Event of Default occurs and is continuing, then and in every such case
        the
        Holder may, in Holder’s sole and absolute discretion, by a notice in writing to
        the Company, rescind any outstanding Conversion Notice and declare that any
        or
        all amounts owing or otherwise outstanding under this Debenture are immediately
        due and payable and upon any such declaration this Debenture or such portion
        thereof, as applicable, shall become immediately due and payable in cash
        at a
        price of one hundred eighteen percent (118%) of the Principal Amount thereof,
        together with all accrued and unpaid interest thereon to the date of payment;
        provided,
        however,
        in the
        case of any Event of Default described in clauses (iii), (iv), (v) or (vii)
        of
        Section 6.1, all amounts owing or otherwise outstanding under this Debenture
        automatically shall become immediately due and payable without the necessity
        of
        any notice or declaration as aforesaid. In the event that the Company is
        obligated to pay any amount to the Holder in connection with an acceleration
        of
        the maturity of this Debenture as set forth herein, the Company shall first
        apply against such amount an amount equal to the outstanding amount owed
        by the
        Holder to the Company under the Promissory Note, if any, and the amount
        otherwise owed by the Company to the Holder in connection with an acceleration
        of the maturity of this Debenture shall be reduced by the outstanding amount
        owed by the Holder to the Company under the Promissory Note, with the Promissory
        Note deemed paid by Holder to the extent of and with respect to such amount,
        and
        if the amount due from the Company to the Holder in connection with an
        acceleration of the maturity of this Debenture is equal to or greater than
        the
        outstanding amount owed under the Promissory Note, the Company shall cancel
        and
        deem the Promissory Note as paid in full in connection with the application
        of
        the amount owed by the Holder to the Company under Promissory Note against
        the
        amount otherwise owed by the Company to the Holder hereunder. The Company
        shall
        immediately pay in cash to the Holder any remaining amount owed by the Company
        to the Holder in connection with the acceleration of the maturity of this
        Debenture as described herein, after the application of the outstanding amount
        owed under the Promissory Note, if any, to such obligation.

      
         

        
          	 	 	 
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          17

          
            

          

        

        
          
          

        

      

       

      SECTION
        6.3  Late
        Payment Penalty. 
        If any portion of the principal of or interest on this Debenture shall not
        be
        paid within ten (10) days of when it is due, the Discount Multiplier under
        this
        Debenture shall decrease by one percentage point (1%) for each period of
        ten
        (10) Business Days that any portion of such amount remains unpaid by the
        Company
        for all conversions of this Debenture thereafter.

       

      SECTION
        6.4  Maximum
        Interest Rate. 
Notwithstanding
        anything herein to the contrary, if at any time the applicable interest rate
        as
        provided for herein shall exceed the maximum lawful rate which may be contracted
        for, charged, taken or received by the Holder in accordance with any applicable
        law (the “Maximum
        Rate”),
        the
        rate of interest applicable to this Debenture shall be limited to the Maximum
        Rate. To the greatest extent permitted under applicable law, the Company
        hereby
        waives and agrees not to allege or claim that any provisions of this Debenture
        could give rise to or result in any actual or potential violation of any
        applicable usury laws.

       

      SECTION
        6.5  Remedies
        Not Waived. 
        No course of dealing between the Company and the Holder or any delay in
        exercising any rights hereunder shall operate as a waiver by the
        Holder.

    

     

    SECTION
      6.6  Remedies. 
The
      Company acknowledges that a breach by it of its obligations hereunder will
      cause
      irreparable harm to the Holder, by vitiating the intent and purpose of the
      transaction contemplated hereby. Accordingly, the Company acknowledges that
      the
      remedy at law for a breach of its obligations under this Debenture will be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of the provisions of this Debenture, that the Holder shall be entitled
      to all other available remedies at law or in equity, and in addition to the
      penalties assessable herein, to an injunction or injunctions restraining,
      preventing or curing any breach of this Debenture and to enforce specifically
      the terms and provisions thereof, without the necessity of showing economic
      loss
      and without any bond or other security being required. 

    
       

      
        	 	 	 
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        18

        
          

        

      

      
        
        

      

    

     

    SECTION
      6.7  Payment
      of Certain Amounts.
       Whenever
      pursuant to this Debenture the Company is required to pay an amount in excess
      of
      the Principal Amount plus accrued and unpaid interest, the Company and the
      Holder agree that the actual damages to the Holder from the receipt of cash
      payment on this Debenture may be difficult to determine and the amount to be
      so
      paid by the Company represents stipulated damages and not a penalty and is
      intended to compensate the Holder in part for loss of the opportunity to convert
      this Debenture and to earn a return from the sale of shares of Common Stock
      acquired upon conversion of this Debenture at a price in excess of that price
      paid for such shares pursuant to this Debenture. The Company and the Holder
      hereby agree that such amount of stipulated damages is not disproportionate
      to
      the possible loss to the Holder from the receipt of a cash payment without
      the
      opportunity to convert this Debenture into shares of Common Stock.

     

    SECTION
      6.8  Filing
      of Form 8-K. 
On
      or
      before the fourth Business Day following the date hereof, the Company shall
      file
      a Current Report on Form 8-K describing the terms of the transactions
      contemplated by the Documents (as defined in the Securities Purchase Agreement),
      as required by the terms of the Securities Purchase Agreement, in the form
      required by the Exchange Act and attaching the material Documents (including,
      without limitation, the Securities Purchase Agreement and this Debenture) as
      exhibits to such filing (the “8-K
      Filing”).
      In
      the event that the Company does not file the 8-K Filing within four Business
      Days following the date hereof, the Discount Multiplier under this Debenture
      shall decrease by one percentage point (1%) for each period of five Business
      Days that the 8-K Filing is not filed by the Company following the date hereof
      for all conversions of this Debenture thereafter.

     

    ARTICLE
      7

    INTEREST
      RATE ADJUSTMENT

    
       

      SECTION
        7.1  Interest
        Rate Adjustment. 
        In the event that the Common Stock shall trade on the Trading Market at a
        price
        per share that is $0.245 per share or lower at any time during the six month
        period commencing on the date hereof and ending on the six month anniversary
        of
        the date hereof (as
        adjusted for any stock splits, stock dividends, combinations, subdivisions,
        recapitalizations or the like),
        then
        (i) the Interest Rate shall immediately be increased to Nine and Three-Quarters
        Percent (9 3⁄4 %) and shall remain at such level for the duration of this
        Debenture; and (ii) the Company shall, within three Business Days of the
        written
        request of the Holder prepay to the Holder the amount of interest that would
        be
        otherwise paid under this Debenture from the date of such written request
        through the Maturity Date (such amount referred to herein as the “Interest
        Prepayment”).
        In
        the event that after the payment by the Company of the Interest Prepayment
        all
        or any of the Principal Amount of this Debenture is converted by Holder or
        redeemed pursuant to the terms of this Debenture prior to the Maturity Date,
        then the Holder shall repay the corresponding pro rata portion of the Interest
        Prepayment equal to the amount of the Interest Prepayment that is represented
        by
        such portion of the Principal Amount at such time that that is so converted
        or
        redeemed (taking into account both the amount of the Principal Amount so
        converted or redeemed and the date upon which such amount is so converted
        or
        redeemed).

    

    
       

      
        	 	 	 
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        19

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      8

    MISCELLANEOUS

    
       

      SECTION
        8.1  Notice
        of Certain Events.
         In the case of the occurrence of any event described in Section 3.4 of
        this Debenture, the Company shall cause to be mailed to the Holder of this
        Debenture at its last address as it appears in the Company’s security registry,
        at least twenty (20) days prior to the applicable record, effective or
        expiration date hereinafter specified (or, if such twenty (20) days’ notice is
        not possible, at the earliest possible date prior to any such record, effective
        or expiration date), a notice thereof, including, if applicable, a statement
        of
        (y) the date on which a record is to be taken for the purpose of such dividend,
        distribution, issuance or granting of rights, options or warrants, or if
        a
        record is not to be taken, the date as of which the holders of record of
        Common
        Stock to be entitled to such dividend, distribution, issuance or granting
        of
        rights, options or warrants are to be determined or (z) the date on which
        such
        reclassification, consolidation, merger, sale, transfer, dissolution,
        liquidation or winding-up is expected to become effective, and the date as
        of
        which it is expected that holders of record of Common Stock will be entitled
        to
        exchange their shares for securities, cash or other property deliverable
        upon
        such reclassification, consolidation, merger, sale transfer, dissolution,
        liquidation or winding-up.

       

      SECTION
        8.2  Register. 
        The Company shall keep at its principal office a register in which the Company
        shall provide for the registration of this Debenture. Upon any transfer of
        this
        Debenture in accordance with Articles 2 and 4 hereof, the Company shall register
        such transfer on the Debenture register.

       

      SECTION
        8.3  Withholding. 
        To the extent required by applicable law, the Company may withhold amounts
        for
        or on account of any taxes imposed or levied by or on behalf of any taxing
        authority in the United States having jurisdiction over the Company from
        any
        payments made pursuant to this Debenture.

       

      SECTION
        8.4  Transmittal
        of Notices. 
        Any notices, consents, waivers, or other communications required or permitted
        to
        be given under the terms of this Agreement must be in writing and will be
        deemed
        to have been delivered (i) upon receipt, when delivered personally; (ii)
        upon
        confirmation of receipt, when sent by facsimile; (iii) three (3) days after
        being sent by U.S. certified mail, return receipt requested, or (iv) one
        (1) day
        after deposit with a nationally recognized overnight delivery service, in
        each
        case properly addressed to the party to receive the same. The addresses and
        facsimile numbers for such communications shall be: 

       

      
        	 	 	 
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          20

          
            

          

        

        
          
          

        

      


       

      
        	 	
                (1)

              	
                If
                  to the Company, to:

              


      

       

      CSMG
        Technologies, Inc.

      Attn:
        Donald S. Robbins, President and CEO

      500
        North
        Shoreline Drive, Suite 1005 North

      Corpus
        Christi, Texas 78471

      
        	 	
                Telephone:

              	
                361-887-7546

              


      

      
        	 	
                Facsimile:

              	
                361-884-0792

              


      

      


      
        	 	
                (2)

              	
                If
                  to the Holder, to:

              


      

      La
        Jolla
        Cove Investors, Inc.

      1150
        Silverado Street, Suite 220

      La
        Jolla,
        California 92037

      
        	 	
                Telephone:

              	
                858-551-8789

              


      

      
        	 	
                Facsimile:

              	
                858-551-8779

              


      

    

     

    Each
      of
      the Holder or the Company may change the foregoing address by notice given
      pursuant to this Section 8.4.

    
       

      SECTION
        8.5  Attorneys’
        Fees. 
        Should any party hereto employ an attorney for the purpose of enforcing or
        construing this Debenture, or any judgment based on this Debenture, in any
        legal
        proceeding whatsoever, including insolvency, bankruptcy, arbitration,
        declaratory relief or other litigation, the prevailing party shall be entitled
        to receive from the other party or parties thereto reimbursement for all
        reasonable attorneys' fees and all reasonable costs, including but not limited
        to service of process, filing fees, court and court reporter costs,
        investigative costs, expert witness fees, and the cost of any bonds, whether
        taxable or not, and that such reimbursement shall be included in any judgment
        or
        final order issued in that proceeding. The "prevailing party" means the party
        determined by the court to most nearly prevail and not necessarily the one
        in
        whose favor a judgment is rendered. 

       

      SECTION
        8.6  Governing
        Law. 
        This Debenture shall be governed by, and construed in accordance with, the
        laws
        of the State of California (without giving effect to conflicts of laws
        principles). With respect to any suit, action or proceedings relating to
        this
        Debenture, the Company irrevocably submits to the exclusive jurisdiction
        of the
        courts of the State of California sitting in San Diego and the United States
        District Court located in the City of San Diego and hereby waives, to the
        fullest extent permitted by applicable law, any claim that any such suit,
        action
        or proceeding has been brought in an inconvenient forum. Subject to applicable
        law, the Company agrees that final judgment against it in any legal action
        or
        proceeding arising out of or relating to this Debenture shall be conclusive
        and
        may be enforced in any other jurisdiction within or outside the United States
        by
        suit on the judgment, a certified copy of which judgment shall be conclusive
        evidence thereof and the amount of its indebtedness, or by such other means
        provided by law.

      
         

        
          	 	 	 
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      SECTION
        8.7  Waiver
        of Jury Trial. 
        To the fullest extent permitted by law, each of the parties hereto hereby
        knowingly, voluntarily and intentionally waives its respective rights to
        a jury
        trial of any claim or cause of action based upon or arising out of this
        Debenture or any other document or any dealings between them relating to
        the
        subject matter of this Debenture and other documents. Each party hereto (i)
        certifies that neither of their respective representatives, agents or attorneys
        has represented, expressly or otherwise, that such party would not, in the
        event
        of litigation, seek to enforce the foregoing waivers and (ii) acknowledges
        that
        it has been induced to enter into this Debenture by, among other things,
        the
        mutual waivers and certifications herein.

       

      SECTION
        8.8  Headings.
         The headings of the Articles and Sections of this Debenture are inserted
        for convenience only and do not constitute a part of this
        Debenture.

       

      SECTION
        8.9  Payment
        Dates. 
        Whenever any payment hereunder shall be due on a day other than a Business
        Day,
        such payment shall be made on the next succeeding Business Day.

       

      SECTION
        8.10  Binding
        Effect. 
        Each Holder by accepting this Debenture agrees to be bound by and comply
        with
        the terms and provisions of this Debenture.

       

      SECTION
        8.11  No
        Stockholder Rights.
         Except as otherwise provided herein, this Debenture shall not entitle the
        Holder to any of the rights of a stockholder of the Company, including, without
        limitation, the right to vote, to receive dividends and other distributions,
        or
        to receive any notice of, or to attend, meetings of stockholders or any other
        proceedings of the Company, unless and to the extent converted into shares
        of
        Common Stock in accordance with the terms hereof.

       

      SECTION
        8.12  Facsimile
        Execution. 
        Facsimile execution of this Debenture shall be deemed
        original.

    

     

    IN
      WITNESS WHEREOF, the Company has caused this Debenture to be signed by its
      duly
      authorized officer on the date of this Debenture.

    
      	 	 	 
	 	CSMG
              Technologies,
              Inc.
	 
 	 
 	 
 
	
            	By:  	/s/ Donald S. Robbins
	 	
              
Name:
              Donald S. Robbins
	 	Title:
              President and CEO


    

    
       

      
        	 	 	 
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    EXHIBIT A

    DEBENTURE
      CONVERSION NOTICE

    

      
        	
                TO:

              	
                CSMG
                  Technologies, Inc.

              


      

      501
        North
        Shoreline Drive, Suite 1005 North

      Corpus
        Christi, Texas 78471

      
        	 	
                Facsimile:

              	
                (361)
                  884-0792

              


      

    

     

    The
      undersigned owner of the Convertible Debenture due November 30, 2011 (the
“Debenture”)
      issued
      by CSMG Technologies, Inc. (the “Company”)
      hereby
      irrevocably exercises its option to convert $__________ of the Principal Amount
      of the Debenture into shares of Common Stock in accordance with the terms of
      the
      Debenture. The undersigned hereby instructs the Company to convert the portion
      of the Debenture specified above into shares of Common Stock Issued at
      Conversion in accordance with the provisions of Article 3 of the Debenture.
      The
      undersigned directs that the Common Stock and certificates therefor deliverable
      upon conversion, the Debenture reissued in the Principal Amount not being
      surrendered for conversion hereby, [the check or shares of Common Stock in
      payment of the accrued and unpaid interest thereon to the date of this Notice,]
      together with any check in payment for fractional Common Stock, be registered
      in
      the name of and/or delivered to the undersigned unless a different name has
      been
      indicated below. All capitalized terms used and not defined herein have the
      respective meanings assigned to them in the Debenture. The conversion pursuant
      hereto shall be deemed to have been effected at the date and time specified
      below, and at such time the rights of the undersigned as a Holder of the
      Principal Amount of the Debenture set forth above shall cease and the Person
      or
      Persons in whose name or names the Common Stock Issued at Conversion shall
      be
      registered shall be deemed to have become the holder or holders of record of
      the
      Common Shares represented thereby and all voting and other rights associated
      with the beneficial ownership of such Common Shares shall at such time vest
      with
      such Person or Persons.

     

    
      	Date
              and
              time: 	 	 


    

     

     

    
      	 	 


    

    
      	 	 	 	 	 
	By:	
            	 	 	
            
	
               

              Title: 

            	
              

            	 	 	
            
	 	
              

            	 	 	 
	Fill in for registration
              of
              Debenture:	 	 	 
	Please print name and
              address	 	 	 
	(including
              ZIP code number):	 	 	 


    

    
      
        	 	 
	 	 
	 	 


      

       

      
        
          
          

        

        
          A
            -
            1