a6019752ex10_02.htm


    EXHIBIT
10.02

     

    NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

    


    THIS NOTE
HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT. PURSUANT TO TREASURY REGULATION
§1.1275-3(b)(1), A REPRESENTATIVE OF THE BORROWER HEREOF WILL, BEGINNING TEN
DAYS AFTER THE ISSUE DATE OF THIS NOTE, PROMPTLY MAKE AVAILABLE TO THE HOLDER
UPON REQUEST THE INFORMATION DESCRIBED IN TREASURY REGULATION
§1.1275-3(b)(1)(i).

    


    Original
Issue Date: July20, 2009

    Original
Conversion Price (subject to adjustment herein): $0.25

    Original
Principal Amount:
$500,000

    


    12%
SENIOR SECURED CONVERTIBLE DEBENTURE

    DUE
July 20, 2011

    


    THIS 12% SENIOR SECURED CONVERTIBLE
DEBENTURE is one of a series of duly authorized and validly issued debentures of
Net Talk.com, Inc., a Florida corporation, having its principal place of
business at 1100 NW 163 Drive, Miami, Florida 33169 (the “Company”), designated
as its 12% Senior Secured Convertible Debenture, due July 20, 2011 (this
debenture, the “Debenture” and
collectively with the other such series of debentures, the “Debentures”).

    


    FOR VALUE
RECEIVED, the Company promises to pay to Debt Opportunity Fund, LLLP, or its
registered assigns (the “Holder”), or shall
have paid pursuant to the terms hereunder, the principal sum of $500,000, by
July 20, 2011, or such earlier date as this Debenture is required or permitted
to be repaid as provided hereunder (the “Maturity Date”), and
to pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture in accordance with the provisions
hereof.  This Debenture is subject to the following additional
provisions:

    


    Section
1.   Definitions. For the
purposes hereof, in addition to the terms defined elsewhere in this Debenture,
(a) capitalized terms not otherwise defined herein shall have the meanings set
forth in the Purchase Agreement (as defined below) and (b) the following terms
shall have the following meanings:


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Alternate
Consideration” shall have the meaning set forth in Section
5(e).

    


    “Bankruptcy Event”
means any of the following events: (a) the Company or any Significant Subsidiary
(as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Company or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or any
Significant Subsidiary thereof suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not discharged or
stayed within 60 calendar days after such appointment; (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the benefit of
creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.

    


    “Base Conversion
Price” shall have the meaning set forth in Section 5(b).

    


    “Business Day” means
any day except Saturday, Sunday, any day which shall be a federal legal holiday
in the United States or any day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.

    


    “Change of Control
Transaction” means the occurrence after the date hereof of any of (i) an
acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 45% of the
voting securities of the Company (other than by means of conversion or exercise
of the Debentures and the Securities issued together with the Debentures), or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving effect to
such transaction, the stockholders of the Company immediately prior to such
transaction own less than 55% of the aggregate voting power of the Company or
the successor entity of such transaction, or (iii) the Company sells or
transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less than
55% of the aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a two year period of
more than one-half of the members of the Company’s board of directors (except as
such replacement may be required pursuant to the rules and regulations of a
Trading Market) which is not approved by a majority of those individuals who are
members of the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), or (v) the
execution by the Company of an agreement to which the Company  is a
party or by which it is bound, providing for any of the events set forth in
clauses (i) through (iv) above.

    


    
      
        
        

      

      
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    “Common Stock” means
the common stock, par value $.001 per share, of the Company and stock of any
other class of securities into which such securities may hereafter be
reclassified or changed into.

    


    “Conversion Date”
shall have the meaning set forth in Section 4(a).

    


    “Conversion Price”
shall have the meaning set forth in Section 4(b).

    


    “Conversion Shares”
means, collectively, the shares of Common Stock issuable upon conversion of this
Debenture in accordance with the terms hereof.

    


    “Debenture Register”
shall have the meaning set forth in Section 2(b).

    


    “Dilutive Issuance”
shall have the meaning set forth in Section 5(b).

    


    “Dilutive Issuance
Notice” shall have the meaning set forth in Section 5(b).

    


    “Event of Default” shall have the meaning set forth in Section
8.

    


    “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

    


    “Fundamental
Transaction” shall have the meaning set forth in Section
5(e).

    


    “Interest Payment
Date” shall have the meaning set forth in Section 2(a).

    


    “Late Fees” shall have
the meaning set forth in Section 2(c).

    


    “Mandatory Default
Amount”  means the sum of (i) the greater of (A) 110% of the
outstanding principal amount of this Debenture, plus all accrued and unpaid
interest hereon, or (B) the outstanding principal amount of this Debenture, plus
all accrued and unpaid interest hereon, divided by the Conversion Price on the
date the Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower Conversion Price, multiplied by the VWAP on the date the
Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in
full, whichever has a higher VWAP, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of this Debenture.

    


    “New York Courts”
shall have the meaning set forth in Section 9(d).

    


    “Notice of Conversion”
shall have the meaning set forth in Section 4(a).

    


    
      
        
        

      

      
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    “Optional Redemption”
shall have the meaning set forth in Section 6.

    


    “Optional Redemption
Amount” means the sum of (i) 100% of the principal amount of the
Debenture then outstanding, (ii) accrued but unpaid interest and (iii) all
liquidated damages and other amounts due in respect of the
Debenture.

    


    “Optional Redemption
Date” shall have the meaning set forth in Section 6.

    


    “Optional Redemption
Notice” shall have the meaning set forth in Section 6.

    


    “Optional Redemption Notice
Date” shall have the meaning set forth in Section 6.

    


    “Original Issue Date”
means the date of the first issuance of the Debentures, regardless of any
transfers of any Debenture and regardless of the number of instruments which may
be issued to evidence such Debentures.

    


    “Permitted
Indebtedness” means the Indebtedness existing on the Original Issue Date
and set forth on Schedule 3.1(t)
attached to the Purchase Agreement.

    


    “Permitted Lien” means
the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Company) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company’s business, such as carriers,’ warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property or
asset subject to such Lien; and (c) Liens incurred in connection with Permitted
Indebtedness under (i) clause (b), provided that such Lien is junior in priority
to the Lien granted to the Holders of the Debentures and (ii) clause (c),
provided that such Liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased.

     

    “Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

     

    “Purchase Agreement”
means the Securities Purchase Agreement among the Company and the original
Holders, dated as of July 20, 2009, as amended, modified or supplemented from
time to time in accordance with its terms.

    


    
      
        
        

      

      
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    “Registration Rights
Agreement” means the Registration Rights Agreement among the Company and
the original Holders, dated July 20, 2009, as amended, modified or supplemented
from time to time in accordance with its terms.

    


    “Registration
Statement” means a registration statement that registers the resale of
all Conversion Shares of the Holder, who shall be named as a “selling
stockholder” therein, and meets the requirements of the Registration Rights
Agreement.

    


    “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

    


    “Share Delivery Date”
shall have the meaning set forth in Section 4(d).

    


    “Subsidiary” shall
have the meaning set forth in the Purchase Agreement.

    


     “Trading Day” means a
day on which the principal Trading Market is open for business.

    


    “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 American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq National Market, the New York Stock Exchange or the
OTC Bulletin Board.

    


    “Transaction
Documents” shall have the meaning set forth in the Purchase
Agreement.

    


    “VWAP” 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 Trading Market on which the Common Stock is then listed
or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from
9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if
the OTC Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on the
OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on
the OTC Bulletin Board and if prices for the Common Stock are then reported in
the “Pink Sheets” published by 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 (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable to the
Company.

    


    Section
2.                Interest.

    


    a) Payment of Interest in Cash
or Kind.  The Company shall pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture at
the rate of 12% per annum, payable quarterly on March 31, June 30, September 30
and December 31, beginning on the first such date after the Original Issue Date,
on each Conversion Date (as to that principal amount then being converted), on
each Optional Redemption Date (as to that principal amount then being redeemed)
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) (each such
date, an “Interest
Payment Date”), in cash.

    


    
      
        
        

      

      
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    b) Interest
Calculations.  Interest shall be calculated on the basis of a
360-day year and shall accrue daily commencing on the Original Issue Date until
payment in full of the principal sum, together with all accrued and unpaid
interest, liquidated damages and other amounts which may become due hereunder,
has been made.  Interest shall cease to accrue with respect to any
principal amount converted, provided that the Company actually delivers the
Conversion Shares within the time period required by Section 4(d)(ii); if the
Company fails to deliver shares within the time period required by Section
4(d)(ii), interest shall cease to accrue upon the actual delivery of the
Conversion Shares.  Interest hereunder will be paid to the Person in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the “Debenture
Register”).

    


    c) Late Fee. All overdue
accrued and unpaid interest to be paid hereunder shall be subject to a late fee
at an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law (“Late Fees”) which
shall accrue daily from the date such interest is due hereunder through and
including the date of payment in full.

    


    d) Prepayment.  The
Company shall have the privilege and option to prepay the then outstanding
principal amount of this Debenture in full, and not in part, at any time prior
to the Maturity Date, upon payment of 110% of the then outstanding principal
amount, plus all accrued and unpaid interest hereon, plus all other amounts,
costs, expenses and liquidated damages due in respect of this
Debenture.  Except as otherwise set forth in the preceding sentence,
the Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder

    


    Section
3.                 Registration of Transfers
and Exchanges.

    


    a) Different
Denominations. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same.  No service charge will
be payable for such registration of transfer or exchange.

    


    b) Investment
Representations. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement and applicable federal and state securities laws and
regulations.

    


    c) Reliance on Debenture
Register. Prior to due presentment for transfer to the Company of this
Debenture, the Company and any agent of the Company may treat the Person in
whose name this Debenture is duly registered on the Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the
contrary.

    


    
      
        
        

      

      
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    Section
4.                Conversion.

    


    a) Voluntary
Conversion.  At any time after the Original Issue Date until
this Debenture is no longer outstanding, this Debenture shall be convertible, in
whole or in part, into shares of Common Stock at the option of the Holder, at
any time and from time to time (subject to the conversion limitations set forth
in Section 4(c) hereof).  The Holder shall effect conversions by
delivering to the Company a Notice of Conversion, the form of which is attached
hereto as Annex
A (a “Notice of
Conversion”), specifying therein the principal amount of this Debenture
to be converted and the date on which such conversion shall be effected (a
“Conversion
Date”).  If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder.  To effect conversions hereunder, the
Holder shall not be required to physically surrender this Debenture to the
Company unless the entire principal amount of this Debenture plus all accrued
and unpaid interest thereon has been so converted. Conversions hereunder shall
have the effect of lowering the outstanding principal amount of this Debenture
in an amount equal to the applicable conversion.  The Holder and the
Company shall maintain records showing the principal amount(s) converted and the
date of such conversion(s).  The Company may deliver an objection to
any Notice of Conversion within 1 Business Day of delivery of such Notice of
Conversion.  The
Holder, and any assignee by acceptance of this Debenture, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of a
portion of this Debenture, the unpaid and unconverted principal amount of this
Debenture may be less than the amount stated on the face
hereof.

    


    b) Conversion
Price.  The conversion price in effect on any Conversion Date
shall be equal to $0.25
(subject to adjustment herein) (the “Conversion
Price”).

    


    c) Conversion
Limitations.

    


    i. Holder’s Restriction on
Conversion. At any time after the Company has had a registration
statement filed pursuant to the Securities Act or the Exchange Act declared
effective, 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 set forth on the applicable
Notice of Conversion, 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 the Warrants) beneficially owned by such
Holder or any of its Affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 4(c)(i), 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 4(c)(i) 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 Notice of Conversion 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
Notice of Conversion that such Notice of Conversion 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 4(c)(i), in determining the number of outstanding shares of
Common Stock, a Holder may rely on the number of outstanding shares of Common
Stock as stated in 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.  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 4(c)(i) may be waived by such Holder, at the election of such Holder,
upon not less than 61 days’ prior notice to the Company, to change the
Beneficial Ownership Limitation to 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 this Debenture held by the Holder and the
provisions of this Section 4(c)(ii) shall continue to apply.  Upon
such a change by a Holder of the Beneficial Ownership Limitation from such 4.99%
limitation to such 9.99% limitation, the Beneficial Ownership Limitation may not
be further waived by such Holder.  The provisions of this paragraph
shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 4(c)(i) 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. The limitations
contained in this paragraph shall apply to a successor holder of this
Debenture.

    


    
      
        
        

      

      
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              d)  

            	
                                                      
      Mechanics
      of Conversion.

            


    

    


    i. Conversion Shares Issuable
Upon Conversion of Principal Amount.  The number of shares of
Common Stock issuable upon a conversion hereunder shall be determined by the
quotient obtained by dividing (x) the outstanding principal amount of this
Debenture to be converted by (y) the Conversion Price.

    


    ii. Delivery of Certificate Upon
Conversion.  Not later than 3 Trading Days after each
Conversion Date (the “Share Delivery
Date”), the Company shall deliver, or cause to be delivered, to the
Holder (A) a certificate or certificates representing the Conversion Shares
which, on or after the effective date of the Registration Statement, shall be
free of restrictive legends and trading restrictions (other than those which may
then be required by the Purchase Agreement) representing the number of shares of
Common Stock being acquired upon the conversion of this Debenture and (B) a bank
check in the amount of accrued and unpaid interest. On or after the effective
date of the Registration Statement, the Company shall use its best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section 4 electronically through the Depository Trust Company or
another established clearing corporation performing similar
functions.

    


    iii. Failure to Deliver
Certificates. If in the case of any Notice of Conversion such certificate
or certificates are not delivered to or as directed by the applicable Holder by
the fifth Trading Day after the Conversion Date, the Holder shall be entitled to
elect by written notice to the Company at any time on or before its receipt of
such certificate or certificates, to rescind such Conversion, in which event the
Company shall promptly return to the Holder any original Debenture delivered to
the Company and the Holder shall promptly return the Common Stock certificates
representing the principal amount of this Debenture tendered for conversion to
the Company.

    


    iv. Obligation Absolute; Partial
Liquidated Damages.  The Company’s obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture in accordance
with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or any
other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the Company to
the Holder in connection with the issuance of such Conversion Shares; provided, however, that such
delivery shall not operate as a waiver by the Company of any such action the
Company may have against the Holder.  In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or anyone associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from a
court, on notice to Holder, restraining and or enjoining conversion of all or
part of this Debenture shall have been sought and obtained, and the Company
posts a surety bond for the benefit of the Holder in the amount of 150% of the
outstanding principal amount of this Debenture, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to such Holder to the extent it obtains judgment.  In the
absence of such injunction, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion.  If the Company
fails for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date,
the Company shall pay to such Holder, in cash, as liquidated damages and not as
a penalty, for each $1000 of principal amount being converted, $10 per Trading
Day (increasing to $20 per Trading Day on the tenth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after the second
Trading Day following the Share Delivery Date until such certificates are
delivered. Nothing herein shall limit a Holder’s right to pursue actual damages
or declare an Event of Default pursuant to Section 8 hereof for the Company’s
failure to deliver Conversion Shares within the period specified herein and such
Holder shall have the right to pursue all remedies available to it hereunder, at
law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief.  The exercise of any such rights shall not
prohibit the Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.

    


    
      
        
        

      

      
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    v. Reservation of Shares
Issuable Upon Conversion.  The Company covenants that it will
at all times reserve and keep available out of its authorized and unissued
shares of Common Stock for the sole purpose of issuance upon conversion of this
Debenture and payment of interest on this Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase rights of
Persons other than the Holder (and the other holders of the Debentures), not
less than such aggregate number of shares of the Common Stock as shall (subject
to the terms and conditions set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 5) upon the
conversion of the outstanding principal amount of this Debenture and payment of
interest hereunder.  The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly authorized, validly
issued, fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public sale in
accordance with such Registration Statement.

    


    vi. Fractional Shares.
Upon a conversion hereunder 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 VWAP at such time.  If the Company elects not, or
is unable, to make such a cash payment, the Holder shall be entitled to receive,
in lieu of the final fraction of a share, 1 whole share of Common
Stock.

    


    vii. Transfer Taxes. The
issuance of certificates for shares of the Common Stock on conversion of this
Debenture shall be made without charge to the Holder hereof for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificates, 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 upon conversion in a name other than that of
the Holder of this Debenture so 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
tax has been paid.

    


    Section
5.                                   Certain
Adjustments.

    


    a) Stock Dividends and Stock
Splits.  If the Company, at any time while this Debenture is
outstanding: (A) subdivides outstanding shares of Common Stock into a larger
number of shares; (B) combines (including by way of a reverse stock split)
outstanding shares of Common Stock into a smaller number of shares; or (C)
issues, in the event of a reclassification of shares of the Common Stock, any
shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding any treasury shares of the Company) outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately 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.

    


    b) Subsequent Equity
Sales. If the Company or any Subsidiary thereof, as applicable, at any
time while this Debenture is outstanding, sells or grants any option to purchase
or sells or grants any right to reprice its securities, or otherwise disposes of
or issues (or announces any sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock at an effective price per share that is lower
than the then Conversion Price (such lower price, the “Base Conversion
Price” and such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share that is lower than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price on such date of the
Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price.  Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued.  Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance.  The Company shall notify the Holder in writing, no
later than the Business Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this Section 5(b), indicating therein the
applicable issuance price, or applicable reset price, exchange price, conversion
price and other pricing terms (such notice, the “Dilutive Issuance
Notice”).  For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon
the occurrence of any Dilutive Issuance, the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of Conversion.

     

    
      
        
        

      

      
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    c) Subsequent Rights
Offerings. If the Company, at any time while the Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share that is lower than the VWAP on the record date
referenced below, then the Conversion Price shall be multiplied by a fraction of
which the denominator shall be the number of shares of the Common Stock
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 the Common Stock
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 (assuming delivery to the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP.  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, options or
warrants.

    


    d) Pro Rata
Distributions.  If the Company, at any time while this
Debenture is outstanding, distributes to all holders of Common Stock (and not to
the Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security
(other than the Common Stock, which shall be subject to Section 5(b)), then in
each such case the Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately 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 VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP 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 1
outstanding share of the Common Stock as determined by the Board of Directors of
the Company in good faith.  In either case the adjustments shall be
described in a statement delivered to the Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to 1 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.

    


    e) Fundamental
Transaction. If, at any time while this Debenture is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one transaction or a series of related transactions, (C) any tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (D) the Company effects
any reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (in any such case, a “Fundamental
Transaction”), then, upon any subsequent conversion of this Debenture,
the Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of 1 share of Common Stock (the “Alternate
Consideration”).  For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of 1 share of Common Stock in such Fundamental Transaction,
and the Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration.  If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction.  To the extent
necessary to effectuate the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall issue to the Holder a
new debenture consistent with the foregoing provisions and evidencing the
Holder’s right to convert such debenture into Alternate Consideration. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this Section 5(e) and insuring that this Debenture (or any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

    


    
      
        
        

      

      
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    f) Calculations. All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be.  For purposes of this
Section 5, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Company) issued and
outstanding.

    


    g) Notice to the
Holder.

    


    Adjustment to Conversion
Price. Whenever the Conversion Price is adjusted pursuant to any
provision of this Section 5, the Company shall promptly mail to each Holder a
notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.

     

    i. Notice to Allow Conversion
by Holder.  If (A) the Company shall declare a dividend (or any
other distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the 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, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be delivered to the
Holder at its last address as it shall appear upon the Debenture Register, at
least twenty (20) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) 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 not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice.  The Holder
is entitled to convert this Debenture during the twenty (20) day period
commencing on the date of such notice through the effective date of the event
triggering such notice.

    


    
      
        
        

      

      
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    Section
6.                 Optional Redemption at
Election of Holder; Forced Conversion.

    


    (a) Optional Redemption at
Election of Holder.  Subject to the provisions
of this Section 6, upon a Change of Control Transaction and at any time on or
before the 90th calendar day following the consummation
of such Change of Control Transaction, the Holder may deliver a notice to the
Company (an “Optional
Redemption Notice” and the
date such notice is deemed delivered hereunder, the “Optional
Redemption Notice Date”) of
its election to require the Company to redeem all or a portion of the then
outstanding Debentures for an amount in cash equal to the Optional Redemption
Amount on the 5th Trading Day following the Optional
Redemption Notice Date (such date, the “Optional
Redemption Date” and such
redemption, the “Optional
Redemption”). The Optional
Redemption Amount is due in full on the Optional Redemption Date. The Holder may
rescind the Optional Redemption Notice at any time until the later of (i) the
Optional Redemption Date or (ii) the date on which the Optional Redemption
Amount is actually paid in full.  The Holder may elect to convert the
outstanding principal amount of the Debenture pursuant to Section 4 prior to
actual payment in cash for any redemption under this Section 6 by the delivery
of a Notice of Conversion to the Company. The Company covenants and agrees that it
will honor all Notices of Conversion tendered from the time of delivery of the
Optional Redemption Notice through the date all amounts owing thereon are due
and paid in full. If any portion of the cash
payment for an Optional Redemption shall not be paid by the Company by the
respective due date, interest shall accrue thereon at the rate of 18% per annum
(or the maximum rate permitted by applicable law, whichever is less) until the
payment of the Optional Redemption Amount plus all amounts owing thereon is paid
in full.

    


    Section
7.                 Negative Covenants.
As long as any portion of this Debenture remains outstanding, unless Purchasers
holding in the aggregate at least 66% of the principal amount of the then
outstanding Debentures shall otherwise consent in writing, the Company shall not, and
shall not permit any of its Subsidiaries to, directly or
indirectly:

    


    a) other than Permitted Indebtedness, enter into, create,
incur, assume, guarantee or suffer to exist any indebtedness for borrowed money
of any kind, including but not limited to, a guarantee, 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;

     

    b) other than Permitted Liens, enter into, create, incur,
assume or suffer to exist any 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;

     

    c) amend its charter documents, including without
limitation, the certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;

     

    d) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of
shares of its Common Stock or Common Stock Equivalents other than as to (a) the
Conversion Shares or Warrant Shares as permitted or required under the
Transaction Documents and (b) repurchases of Common Stock or Common Stock
Equivalents of departing officers and directors of the Company, provided that
such repurchases shall not exceed an aggregate of $100,000 for all officers and
directors during the term of this Debenture;

     

    e) none of
the officers, directors or other Affiliates of the Company shall enter into any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including entering into any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or other Affiliates or any
entity in which any officer, director, or other Affiliates has a substantial
interest or is an officer, director, trustee or partner;

     

    
      
        
        

      

      
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    f) on an
annualized basis, none of the officers of the Company or a Subsidiary shall
receive an increase in salary or bonus in excess of 15% of the prior year’s
salary or bonus, as applicable;

     

    g) enter into any agreement with respect to
any of the foregoing;
or

     

    h) pay cash dividends or distributions on any equity
securities of the Company.

    


    Section
8.                             Events of
Default.

    


    a) “Event of Default”
means, wherever used herein, any of the following events (whatever the reason
for such event and whether such event shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):

    


    i.           any default in the payment of (A) the principal amount
of any Debenture or (B) interest, liquidated damages and other amounts owing to
a Holder on any Debenture, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest payment or other
default under clause (B) above, is not cured within five (5) Trading
Days;

    


    ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures which failure is not cured, if possible to cure,
within the earlier to occur of (A) Fifteen (15) Trading Days after notice of
such failure sent by the Holder or by any other Holder and (B) 30 Trading Days
after the Company has become or should have become aware of such
failure;

    


    iii. a default
or event of default (subject to any grace or cure period provided in the
applicable agreement, document or instrument) shall occur under (A) any of the
Transaction Documents or (B) any other material agreement, lease, document or
instrument to which the Company or any Subsidiary is obligated (and not covered
by clause (vi) below);

    


    iv. any
representation or warranty made in this Debenture, any other Transaction
Documents, any written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder or any other
Holder shall be untrue or incorrect in any material respect as of the date when
made or deemed made;

    


    
      
        
        

      

      
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    v. the
Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;

    


    vi. the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $250,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

    


    vii. the Common
Stock shall not be eligible for listing or quotation for trading on a Trading
Market (as defined above) and shall not be eligible to resume listing or
quotation for trading thereon within ten (10) Trading Days;

    


    viii. the
Company shall fail for any reason to deliver certificates to a Holder prior to
the tenth (10th)
Trading Day after a Conversion Date pursuant to Section 4(d) or the Company
shall provide at any time notice to the Holder, including by way of public
announcement, of the Company’s intention to not honor requests for conversions
of any Debentures in accordance with the terms hereof; or

    


    ix. any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any Subsidiary or any of their respective property or other
assets for more than $150,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of forty five (45)
calendar days.

    


    b) Remedies Upon Event of
Default. If any Event of Default occurs, the outstanding principal amount
of this Debenture, plus accrued but unpaid interest, liquidated damages and
other amounts owing in respect thereof through the date of acceleration, shall
become, at the Holder’s election, immediately due and payable in cash at the
Mandatory Default Amount.  Commencing five (5) days after the
occurrence of any Event of Default that results in the eventual acceleration of
this Debenture, the interest rate on this Debenture shall accrue at an interest
rate equal to the lesser of 18% per annum or the maximum rate permitted under
applicable law.  Upon the payment in full of the Mandatory Default
Amount, the Holder shall promptly surrender this Debenture to or as directed by
the Company. In connection with such acceleration described herein, the Holder
need not provide, and the Company hereby waives, any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable
law.  Such acceleration may be rescinded and annulled by Holder at any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment
pursuant to this Section 8(b).  No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent
thereon.

    


    
      
        
        

      

      
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    Section
9.                Miscellaneous.

    


    a) Notices.  Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder, including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other address as the Company may specify for such
purpose by notice to the Holder delivered in accordance with this Section
9.  Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, or sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile number or address of such Holder
appearing on the books of the Company, or if no such facsimile number or address
appears, at the principal place of business of the Holder.  Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section 9 prior to 5:30 p.m. (New York City time), (ii) the date
immediately following the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified in this Section 9
between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on
any date, (iii) the second Business Day following the date of mailing, if sent
by nationally recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.

    


    b) Absolute
Obligation.  Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, liquidated damages and
accrued interest, as applicable, on this Debenture at the time, place, and rate,
and in the coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth
herein.

    


    c) Lost or Mutilated
Debenture.  If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed, but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, reasonably satisfactory to the
Company.

    


    d) Governing Law. All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflict of laws thereof.  Each party agrees that all
legal proceedings concerning the interpretation, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “New York
Courts”).  Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing contained herein shall be deemed
to limit in any way any right to serve process in any other manner permitted by
applicable law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby.  If either party shall commence an
action or proceeding to enforce any provisions of this Debenture, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys’ fees and other costs and expenses incurred in the
investigation, preparation and prosecution of such action or
proceeding.

    


    
      
        
        

      

      
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    e) Waiver.  Any
waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture.  The failure of the Company or the Holder to insist upon
strict adherence to any term of this Debenture on one or more occasions shall
not be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Debenture.  Any waiver by the Company or the Holder must be in
writing.

    


    f) Severability. If any
provision of this Debenture is invalid, illegal or unenforceable, the balance of
this Debenture shall remain in effect, and if any provision is inapplicable to
any Person or circumstance, it shall nevertheless remain applicable to all other
Persons and circumstances.  If it shall be found that any interest or
other amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable
law.  The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on this Debenture as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.

    


    g) Next Business
Day.  Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.

    


    h) Headings.  The
headings contained herein are for convenience only, do not constitute a part of
this Debenture and shall not be deemed to limit or affect any of the provisions
hereof.

    


    i) Assumption.  Any
successor to the Company or any surviving entity in a Fundamental Transaction
shall (i) assume, prior to such Fundamental Transaction, all of the obligations
of the Company under this Debenture and the other Transaction Documents pursuant
to written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) issue to the
Holder a new debenture of such successor entity evidenced by a written
instrument substantially similar in form and substance to this Debenture,
including, without limitation, having a principal amount and interest rate equal
to the principal amount and the interest rate of this Debenture and having
similar ranking to this Debenture, which shall be satisfactory to the Holder
(any such approval not to be unreasonably withheld or delayed).  The
provisions of this Section 9(i) shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
of this Debenture.

    


    j) Secured Obligation.
The obligations of the Company under this Debenture are secured by all assets of
the Company pursuant to the Security Agreement, dated as of January 30, 2009,
between the Company, the Subsidiaries of the Company and the Secured Parties (as
defined therein), as amended.

    


    *********************

    
      
        
        

      

      
        - 16
-

        
          

        

      

      
        
        

      

    

    IN WITNESS WHEREOF, the Company has
caused this Debenture to be duly executed by a duly authorized officer as of the
date first above indicated.

    


    


    
      
        
          
            	 	
                    NET
      TALK.COM, INC.

                     

                  
	 	
                    By:
      /s/  Anastasios
      Kyriakides______________

                         
      Name: Anastasios Kyriakides

                         
      Title: Chief Executive Officer

                  
	 	 
      


          

        

      

    

    


    
 

     

     

    - 17
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