EXHIBIT
10.12

     

    VPP
SECURITIES PURCHASE AGREEMENT

     

    This
Securities Purchase Agreement (this “Agreement”) is dated
as of July 31, 2009 between Capital Growth Systems, Inc., a Florida corporation
(the “Company”), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and
collectively, the “Purchasers”).

     

    WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and
Rule 506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement.

     

    NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:

     

    ARTICLE
I.

    DEFINITIONS

     

    1.1           Definitions.  In
addition to the terms defined elsewhere in this Agreement: (a) capitalized terms
that are not otherwise defined herein have the meanings given to such terms in
the Debentures (as defined herein), and (b) the following terms have the
meanings set forth in this Section 1.1:

     

    “Acquiring Person”
shall have the meaning ascribed to such term in Section 4.7.

     

    “Action” shall have
the meaning ascribed to such term in Section 3.1(j).

     

    “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 405 under the Securities Act.

     

    “Authorized Share
Approval” means (i) the vote by the stockholders of the Company to
approve an amendment to the Company’s articles or certificate of incorporation
that increases the number of authorized shares of Common Stock to at least
990,000,000 shares of Common Stock (the “Amendment”) and (ii)
the filing by the Company of the Amendment with the Secretary of State of the
State of Florida and the acceptance of the Amendment by the Secretary of State
of the State of Florida.

     

    “Board of Directors”
means the board of directors of the Company.

     

    “Business Day” means
any day except Saturday, Sunday, any day which is 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.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    “Closing” means the
closing of the purchase and sale of the Securities pursuant to Section
2.1.

     

    “Closing Date” means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.

     

    “Closing Statement”
means the Closing Statement in the form Annex A attached
hereto.

     

    “Collateral Agent”
shall mean the collateral agent for the benefit of the Debenture holders, as
named in the Security Agreement.

     

    “Commission” means the
United States Securities and Exchange Commission.

     

    “Common Stock” means
the common stock of the Company, par value $0.001 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed into.

     

    “Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive Common
Stock.

     

    “Conversion Price”
shall have the meaning ascribed to such term in the Debentures.

     

    “Consent, Waiver and
Amendment Agreement” shall have the meaning set forth in Section 2.2
(b)(i) hereof.

     

    “Debentures” means the
Original Issue Discount Secured Convertible Debentures due, subject to the terms
therein, due November 30, 2011, issued by the Company to the Purchasers
hereunder, in the form of Exhibit A attached
hereto.

     

    “Disclosure Schedules”
shall have the meaning ascribed to such term in Section 3.1.

     

    “Discussion Time”
shall have the meaning ascribed to such term in Section 3.2(f).

     

    “Effective Date” means
the earlier of (a) the effective date of a Registration Statement and (b) the
date that all of Underlying Shares issuable pursuant to the Transaction
Documents may be sold or are eligible for sale under Rule 144,
without  volume or manner-of-sale restrictions.  In
determining eligibility for sale under Rule 144, with respect to the Warrants,
it is assumed that the Warrants shall be exercised pursuant to cashless
exercise, so that the holding period for the Underlying Shares underlying the
Warrants shall tack back to the holding period of the Warrants.


    
      
         


      

      
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    “Evaluation Date”
shall have the meaning ascribed to such term in Section 3.1(r).

     

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

     

    “Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan duly
adopted for such purpose by a majority of the non-employee members of the Board
of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the exercise or
exchange of or conversion of any Securities issued pursuant to the July Purchase
Agreement or under the March Purchase Agreement (including but not limited to
the Original Issue Discount Debentures expiring November 20, 2015 issued in
exchange for the original debentures issued pursuant to that agreement), the
November Purchase Agreement or this Purchase Agreement (including but not
limited to the issuance of Common Stock: (i) pursuant to Section 2.1 or Section
4.14 of the July Purchase Agreement; (ii) with respect to the redemption of the
Debentures and the debentures issued pursuant to the March Purchase Agreement,
the November Purchase Agreement or this Purchase Agreement, or (iii) pursuant to
payment of any liquidated damages with respect to the July Debentures, the July
Warrants and the July Purchase Agreement and the debentures and warrants issued
or issuable  pursuant to the March Purchase Agreement, November
Purchase Agreement and this Purchase Agreement) and/or other securities
exercisable or exchangeable for or convertible into shares of Common Stock
issued and outstanding on the date of this Agreement, (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities, (d) for purposes of Section 4.12 only, an issuance of
Common Stock or Common Stock Equivalents, without registration rights, for cash
consideration, to the global carrier referenced in the Company’s press release
dated February 20, 2008, provided, however, any such issuance of Common Stock
Equivalents shall be expressly subordinate to the Debentures pursuant to a
written subordination agreement with the Purchasers that is acceptable to each
Purchaser in its sole and absolute discretion; (e) outstanding Common Stock and
Common Stock Equivalents as of the date hereof and all securities issuable in
connection with them; and (f) for purposes of Sections 4.12 and 4.13 only,
securities (including shares of Commons Stock, warrants and Common Stock
Equivalents) issued in connection with the Senior Lender Loan Agreement, the
terms of which are described in the Disclosure Schedules
hereto).


    
      
         


      

      
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    “GAAP” shall have the
meaning ascribed to such term in Section 3.1(h).

     

    “Holders” shall mean
the persons or entities holding the Debentures from time to time.

     

    “Indebtedness” shall
have the meaning ascribed to such term in Section 3.1(aa).

     

    “Intellectual Property
Rights” shall have the meaning ascribed to such term in Section
3.1(o).

     

    “July Debentures”
shall mean the up to $10,500,000 in original principal amount (and any
accretions in principal amount thereof pursuant to the terms thereof) of
debentures issued by the Company in July, 2009.

     

    “July Purchase
Agreement” shall mean the purchase agreement pursuant to which the July
Debentures and July Warrants are issued.

     

    “July Purchasers
Intercreditor Agreement” shall mean the intercreditor agreement in favor
of the Purchasers in the form attached hereto as Exhibit H.

     

    “July Warrants” shall
mean the warrants issued pursuant to the July Purchase Agreement.

     

    “Legend Removal Date”
shall have the meaning ascribed to such term in Section 4.1(c).

     

    “Liens” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.

     

    “March Purchase
Agreement” means the Securities Purchase Agreement, dated as of March 11,
2008, by and among the Company and each of the purchasers signatories thereto
for the issuance of debentures and warrants.

     

     “March Purchasers”
means the purchasers of the securities issued pursuant to the March Purchase
Agreement and any successors in interest to any of the debentures and warrants
issued pursuant to the March Purchase Agreement (by way of assignment or
cancellation and reissuance of the same).

     

    “March Registration Rights
Agreement” means the Registration Rights Agreement, dated March 11, 2008,
by and among the Company and each of the March Purchasers.

     

    “Material Adverse
Effect” shall have the meaning assigned to such term in Section
3.1(b).

     

    “Material Permits”
shall have the meaning ascribed to such term in Section 3.1(m).


    
      
         


      

      
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    “Maximum Rate” shall
have the meaning ascribed to such term in Section 5.17.

     

    “November Purchase
Agreement” means the Securities Purchase Agreement, dated as of November
19, 2008, by and among the Company and each of the purchasers signatory thereto
for the issuance of debentures and warrants.

     

    “November Purchasers”
means the purchasers of the securities issued pursuant to the November Purchase
Agreement and any successors in interest to any of the debentures and warrants
issued pursuant to the November Purchase Agreement (by way of assignment or
cancellation and reissuance of the same).

     

    “November Purchasers
Intercreditor Agreement” means the intercreditor agreement dated as of
November 19, 2008, duly executed by the Company, each of the Purchasers and each
of the November Purchasers and each of the March Purchasers party
thereto.

     

    “Participation
Maximum” shall have the meaning ascribed to such term in Section
4.12(a).

     

    “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.

     

     “Pre-Notice” shall
have the meaning ascribed to such term in Section 4.12(b).

     

    “Principal Amount”
means, as to each Purchaser, the amounts set forth below such Purchaser’s
signature block on the signature pages hereto next to the heading “Principal
Amount,” in United States Dollars, which shall equal such Purchaser’s
Subscription Amount multiplied by 1.65.

     

    “Other  Debentures”
means the March Debentures, the November Debentures and the July
Debentures.

     

     “Pro Rata Portion”
shall have the meaning ascribed to such term in Section 4.12(e).

     

    “Proceeding” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.

     

    “Purchaser Party”
shall have the meaning ascribed to such term in Section 4.10.

     

    “Registration
Statement” means a registration statement filed pursuant to Section 4.18,
registering the resale, by the Purchasers, of all of the Underlying Shares, or
any portion thereof.


    
      
         


      

      
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    “Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).

     

    “Required Minimum”
means, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise in full of all
Warrants or conversion in full of all Debentures (including Underlying Shares
issuable as payment of interest on the Debentures), ignoring any conversion or
exercise limits set forth therein, and assuming that the Conversion Price is at
all times on and after the date of determination 75% of the then Conversion
Price on the Trading Day immediately prior to the date of
determination.

     

    “Rule 144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

     

    “SEC Reports” shall
have the meaning ascribed to such term in Section 3.1(h).

     

    “Securities” means the
Debentures, the Warrants, the Warrant Shares and the Underlying
Shares.

     

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

     

    “Security Agreement”
means the Security Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit E attached
hereto.

     

    “Security Documents”
shall mean the Security Agreement, the Subsidiary Guarantees, the Intercreditor
Agreement, and any other documents and filing required thereunder in order to
grant the Purchasers a security interest in the assets of the Company and the
Subsidiaries as provided in the Security Agreement, including all UCC-1 filing
receipts.

     

    “Senior Debt” shall
have the meaning set forth in the July Senior Lender Intercreditor
Agreement.

     

    “Senior Lender” shall
mean ACF CGS, L.L.C. as agent for itself and other persons participating in the
Senior Debt.

     

    “Senior Lender Intercreditor
Agreements” means: (i) the Intercreditor Agreement, dated as of November
19, 2008 (“November Senior Lender Intercreditor Agreement”) among the Senior
Lender, the Company and the holders of the March Debentures and November
Debentures as of such date; (ii) the Intercreditor Agreement among the Senior
Lender, the Company and the Holders of the July Debentures dated on or about the
date of this Agreement (“July Senior Lender Intercreditor Agreement”); and (iii)
the Intercreditor Agreement among the Senior Lender, the Company and the holders
of the Debentures.


    
      
         


      

      
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    “Senior Lender
Purchasers” means the purchasers of the securities issued pursuant to the
Loan and Security Agreement dated as of November 19, 2008 by and among the
Company and its Subsidiaries and ACF CGS, L.L.C. (the “Senior Lender Loan
Agreement”).

     

    “Short Sales” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock). 

     

    “67%
Majority”  shall mean the Holders of 67% or more aggregate
principal amount of the Debentures issued pursuant to this Agreement and
outstanding from time to time.

     

    “Subscription Amount”
means, as to each Purchaser, the aggregate amount to be paid for Debentures and
Warrants purchased hereunder as specified below such Purchaser’s name on the
signature page of this Agreement and next to the heading “Subscription Amount,”
in United States dollars and in immediately available funds.

     

    “Subsequent Financing”
shall have the meaning ascribed to such term in Section 4.12(a).

     

    “Subsequent Financing
Notice” shall have the meaning ascribed to such term in Section
4.12(b).

     

    “Subsidiary” means any
subsidiary of the Company as set forth on Schedule 3.1(a) and
shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.

     

    “Subsidiary Guarantee”
means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in
favor of the Purchasers, in the form of Exhibit F attached
hereto.

     

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

     

    “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 Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange, the OTC Bulletin Board or the Pink Sheets.

     

     “Transaction
Documents” means this Agreement, the Debentures, the Warrants, the
Security Agreement, the Subsidiary Guarantee, the Senior Lender Intercreditor
Agreement, the March Purchasers Intercreditor Agreement, the November Purchasers
Intercreditor Agreement, the Consent, Waiver and Amendment Agreement, all
exhibits and schedules thereto and hereto and any other documents or agreements
executed in connection with the transactions contemplated
hereunder.


    
      
         


      

      
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    “Transfer Agent” means
Continental Stock Transfer & Trust Company, the current transfer agent of
the Company with a mailing address of 17 Battery Place, New York, New York 10004
and a facsimile number of 212-509-5150, and any successor transfer agent of the
Company.

     

    “Underlying Shares”
means the shares of Common Stock issued and issuable upon conversion or
redemption of the Debentures and upon exercise of the Warrants and issued and
issuable in lieu of the cash payment of interest on the Debentures in accordance
with the terms of the Debentures.

     

    “Variable Rate
Transaction” shall have the meaning ascribed to such term in Section
4.13(b).

     

    ”Vendor Payment
Plan”  shall mean the plan put in place by the Company (on
behalf of itself and its subsidiaries) and certain of the trade creditors of the
Company and/or its subsidiaries on or before the date of this Agreement and as
amended from time to time by the Company with the consent of the Collateral
Agent, for the reduction of past due obligations of the Company and its
subsidiaries to such creditors.

     

    “VPP Debentures” shall
mean the Debentures.

     

    “VPP Warrants” shall
mean the Warrants.

     

    “VPP Purchase
Agreement” shall this 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 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 listed or 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 OTC Markets, Inc. (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 Purchasers of a majority in interest of
the Securities then outstanding and reasonably acceptable to the Company, the
fees and expenses of which shall be paid by the Company.

     

    “Warrants” means,
collectively, the Common Stock purchase warrants delivered to the Purchasers at
the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be
exercisable immediately and have a term of exercise equal to 5 years from the
date of the Authorized Share Approval, in the form of Exhibit C
attached hereto.


    
      
         


      

      
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    “Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.

     

    ARTICLE
II.

    PURCHASE
AND SALE

     

    2.1           Closing.  On
the Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase up to $4,125,000, in the aggregate, in
principal amount of the Debentures (representing an aggregate “Subscription
Amount” of up to $2,500,000 and an original issue discount amount of 65% of the
cash Subscription Amount); any Debentures not issued on the Closing Date may be
issued thereafter at such times as are mutually agreeable to the Company and the
Collateral Agent (each such date being a “Subsequent Closing
Date”).  Each Purchaser shall deliver to the Company within one
business day following execution hereof written acknowledgment of reduction in
the obligations owing by the Company or any of its wholly owned subsidiaries to
Purchaser of the Subscription Amount and the Company shall deliver to each
Purchaser its respective Debenture and a Warrant, as determined pursuant to
Section 2.2(a), and the Company and each Purchaser shall deliver the other items
set forth in Section 2.2 deliverable at the Closing or any Subsequent Closing
Date.  Upon satisfaction of the conditions set forth in Sections 2.2
and 2.3, the Closing shall occur at the offices of Shefsky & Froelich Ltd.
or such other location as the parties shall mutually agree.

     

    2.2           Deliveries.

     

     
(a)          On the Closing
Date, the Company shall deliver or cause to be delivered to each Purchaser the
following:

     

     
(i)            this
Agreement duly executed by the Company;

     

     
(ii)          a Debenture with
a principal amount equal to such Purchaser’s Subscription Amount multiplied by
1.65, registered in the name of such Purchaser;

     

      (iii)         a
Warrant registered in the name of such Purchaser to purchase up to a number of
shares of Common Stock equal to 75% of such Purchaser’s Subscription Amount
divided by $0.24, with an exercise price equal to $0.24, subject to adjustment
therein;

     

     
(iv)         the Security
Agreement, duly executed by the Company and each Subsidiary, along with all of
the Security Documents, including the Subsidiary Guarantee, duly executed by the
parties thereto;


    
      
         


      

      
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    (v)           a
form of consent, waiver and amendment agreement issued by: (A) the Senior Lender
Purchasers in the form attached as Exhibit I-1 (“Senior Lender Consent, Waiver
and Amendment Agreement”); and (B) holders of not less than 67% of the
outstanding principal amount of the March Debentures and the November Debentures
in the form attached as Exhibit I-2 (“Other Debenture Holders’ Consent, Wavier
and Amendment Agreement”), consenting to the transactions contemplated
herein;

     

    (vi)           the
July Senior Lender Intercreditor Agreement, duly executed by the Company and the
Senior Lender Purchasers, if required by Senior Lender
;  and

     

    (vii)          the
July Purchasers Intercreditor Agreement, duly executed by the Company and each
of the July Purchasers.

     

    (viii)         evidence
of the initial closing of the sale of July Debentures.

     

    (b)          On
the Closing Date, each Purchaser shall deliver or cause to be delivered to the
Company the following (unless waived by the Company with the consent of the
Collateral Agent):

     

    
      	
               
      

            	
              (i)

            	
               
      this Agreement duly executed by such
Purchaser;

            


    

     

    (ii)          
such Purchaser’s proof of funding of the Subscription Amount by delivery of
written acknowledgment on the counterpart signature page hereof of the
corresponding offset in the amount of monies otherwise owing from the Company or
any of its wholly owned subsidiaries to the Purchaser.

     

    (iii)           the
Security Agreement duly executed by such Purchaser;

     

    (iv)          
the July Senior Lender Intercreditor Agreement duly executed by such Purchaser;
and

     

    (v)           
the July Purchasers Intercreditor Agreement duly executed by such Purchaser.

     

    (c)          .
C losing Conditions.

     

    (a)            The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:

     

    (i)           
 the accuracy in all material respects on the Closing Date of the
representations and warranties of the Purchasers contained herein;

     

    (ii)         
  all obligations, covenants and agreements of each Purchaser required
to be performed at or prior to the Closing Date shall have been performed;
and


    
      
         


      

      
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    (iii)           the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.

     

    (b)           The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met or waived by the
Purchasers.

     

    (i)             the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein;

     

    (ii)            all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing Date shall have been performed;

     

    (iii)           the
delivery of the consent, waiver and amendment agreement, in the form attached
hereto as Exhibit
I-1, duly executed by the parties named therein;

     

    (iv)           there
shall have been no Material Adverse Effect with respect to the Company since the
date hereof;

     

    (v)            from
the date hereof to the Closing Date, trading in the Common Stock shall not have
been suspended by the Commission  and, at any time prior to the
Closing Date, a banking moratorium shall not have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase
the Securities at the Closing;

     

    (vi)           subscriptions
for no less than $3,500,000 of July Debenture Subscription Amount must have been
received by the Company, and the  holders of Other Debentures holding
not less than 67% of the outstanding Other Debentures principal amount must have
executed the Consent, Waiver and Amendment Agreement;

     

    (vii)          the
Company shall have documented a restructuring plan with the holders of not less
than 60% of outstanding accounts payable of the Company which are over 60 days
outstanding; and

     

    (viii)         Senior
Lender and the Company shall have amended the Senior Lender Loan Agreement with
respect to the covenants  in a manner satisfactory to the Company and
Aequitas Capital Management, Inc. (“Aequitas”) and the loan subject to the
Senior Lender Loan Agreement shall continue to have a maturity date no earlier
than its original maturity date, and with the Senior Lender having waived all
know defaults under the Senior Loan Agreement (including with respect to the
forbearance agreement dated as of July 7, 2009—“Forbearance
Agreement”).


    
      
         


      

      
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    ARTICLE
III.

    REPRESENTATIONS
AND WARRANTIES

     

    3.1           Representations and
Warranties of the Company.  Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation or otherwise made herein to the extent of
the disclosure contained in the corresponding section of the Disclosure
Schedules, the Company hereby makes the following representations and warranties
to each Purchaser:

     

     (a)           Subsidiaries.  All
of the direct and indirect subsidiaries of the Company are set forth on Schedule
3.1(a).  Except as set forth on Schedule 3.1(a), the
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all of the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.

     

     (b)           Organization and
Qualification.  The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and except as
noted in Schedule 3.1(b), in good standing under the laws of the jurisdiction of
its incorporation or organization, with the requisite power and authority to own
and use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents.  Each of the Company and the Subsidiaries is duly qualified
to conduct business and except as noted in Schedule 3.1(b) is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in: (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse
Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.


    
      
         


      

      
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    (c)           Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals.  Each
Transaction Document to which it is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

     

    (d)           No
Conflicts.  Subject to receipt of the Senior Lender Consent,
Waiver and Amendment Agreement and the Other Debenture Holders’ Consent, Waiver
and Amendment Agreement, the execution, delivery and performance by the Company
of the Transaction Documents to which it is a party and the consummation by it
of the other transactions contemplated hereby and thereby do not and will not:
(i) conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.

     

    (e)           Filings, Consents and
Approvals.  The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Section 4.6, (ii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale of
the Securities and the listing of the Underlying Shares for trading thereon in
the time and manner required thereby, and (iii) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “Required
Approvals”).


    
      
         


      

      
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    (f)       
    Issuance of the
Securities.  The Securities (other than the Underlying Shares)
are duly authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction
Documents.  Subject only to the Authorized Share Approval, the
Underlying Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents.

     

    (g)           Capitalization.  The
capitalization of the Company is as set forth on Schedule 3.1(g),
which Schedule
3.1(g) shall also include the number of shares of Common Stock owned
beneficially, and of record, by Affiliates of the Company as of the date hereof.
The Company has not issued any capital stock since its most recently filed
periodic report under the Exchange Act, other than pursuant to the exercise of
employee stock options under the Company’s stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company’s employee stock
purchase plans and pursuant to the conversion and/or exercise of Common Stock
Equivalents outstanding as of the date of the most recently filed periodic
report under the Exchange Act or as reflected on Schedule
3.1(g).  Except as set forth on Schedule 3.1(g)(i),
no Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.  Except as a result of the
purchase and sale of the Securities or on Schedule 3.1(g),
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. Except as set forth on Schedule 3.1(g)(ii),
the issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities.  Except as set forth on Schedule 3.1(g)(iii),
no further approval or authorization of any stockholder, the Board of Directors
or others is required for the issuance and sale of the
Securities.  There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company’s stockholders.


    
      
         


      

      
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    (h)           SEC Reports; Financial
Statements.  Except for the Form 10-K for the year ended
December 31, 2008 and Form 10-Q for the quarter ended March 31, 2009, which are
unfiled as of the date hereof, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof (or such shorter
period as the Company was required by law or regulation to file such material)
(the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension.  Except as noted on Schedule 3.1(h), or
as otherwise disclosed in subsequently filed SEC Reports filed prior to the date
hereof, as of their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange Act, as
applicable, and none of the SEC Reports, when filed except as otherwise
disclosed in subsequently filed SEC Reports filed prior to the date hereof,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.  Except as described on Schedule 3.1(h), the
Company has never been an issuer subject to Rule 144(i) under the Securities
Act.  Except as otherwise disclosed in Schedule 3.1(h) or
subsequently filed SEC Reports filed prior to the date hereof, the financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of
filing.  Except as otherwise disclosed in Schedule 3.1(h) or
subsequently filed SEC Reports filed prior to the date hereof, such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may
be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

     

    (i)       
    Material
Changes.  Other than as set forth on Schedule 3.1(i),
since the date of the latest audited financial statements included within the
SEC Reports, except as specifically disclosed in a subsequent SEC Report filed
prior to the date hereof: (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice or in connection with
the transaction contemplated by this Agreement and (B) liabilities not required
to be reflected in the Company’s financial statements pursuant to GAAP or
disclosed in filings made with the Commission, (iii) the Company has not altered
its method of accounting, (iv) the Company has not declared or made any dividend
or distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information.  Except for the issuance of the
Securities contemplated by this Agreement and the other transactions
contemplated by the Transaction Documents or as set forth on Schedule 3.1(i), no
event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or
deemed made that has not been publicly disclosed at least 1 Trading Day prior to
the date that this representation is made.


    
      
         


      

      
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    (j)       
    Litigation.  There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect, except as noted in Schedule
3.1(j).  Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty, except as set forth on Schedule
3.1(j).  There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company.  The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities
Act.

     

    (k)           Labor
Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.  None of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is a
party to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good.  No
executive officer, to the knowledge of the Company, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters.  Except as
disclosed on Schedule
3.1(k), the Company and its Subsidiaries are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment
and employment practices, terms and conditions of employment and wages and
hours, except where the failure to be in compliance could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.


    
      
         


      

      
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    (l)          
  Compliance.  Except
as set forth on Schedule 3.1(l),
neither the Company nor any Subsidiary: (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body or (iii) is or has been in violation of
any statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could not
have or reasonably be expected to result in a Material Adverse
Effect.

     

    (m)           Regulatory
Permits.  Except as disclosed on Schedule 3.1(m), the
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not
reasonably be expected to result in a Material Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.

     

    (n)           Title to
Assets.  Except for the liens set forth on Schedule 3.1(n), the
Company and the Subsidiaries have good and marketable title in fee simple to all
real property owned by them and good and marketable title in all personal
property owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties.  Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases
with which the Company and the Subsidiaries are in compliance.

     

    (o)           Patents and
Trademarks.  The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights as described
in the SEC Reports as necessary or material for use in connection with their
respective businesses and which the failure to so could have a Material Adverse
Effect (collectively, the “Intellectual Property
Rights”).  Neither the Company nor any Subsidiary has received
a notice (written or otherwise) that any of the Intellectual Property Rights
used by the Company or any Subsidiary violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights.  The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.


    
      
         


      

      
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    (p)           Insurance.  The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage in the amount of $10.0 million.  Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

     

    (q)           Transactions with Affiliates
and Employees.  Except as set forth in the SEC Reports, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including 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 such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.

     

    (r)        
   Sarbanes-Oxley; Internal
Accounting Controls.  Except as set forth on Schedule 3.1(r), the
Company is in material compliance with all provisions of the Sarbanes-Oxley Act
of 2002 which are applicable to it as of the Closing Date.  Except as
noted on Schedule
3.1(r), the Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that: (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Except as noted on Schedule 3.1(r), the
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms.  The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation
Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Except as noted in
Schedule
3.1(r), since the Evaluation Date, there have been no changes in the
Company’s internal control over financial reporting (as such term is defined in
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.


    
      
         


      

      
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    (s)       
    Certain
Fees.  No brokerage or finder’s fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents, except as set forth
on Schedule
3.1(s).  The Purchasers shall have no obligation with respect
to any fees or with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents.

     

    (t)        
   Private
Placement.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.

     

    (u)           Investment Company.
The Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  The Company shall conduct its business in a manner so that
it will not become subject to the Investment Company Act of 1940, as
amended.

     

    (v)           Registration
Rights.  Other than the persons specified on Schedule 3.1(v), no
Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.

     

    (w)           Listing and Maintenance
Requirements.  The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration.  Except as noted in Schedule 3.1(w): (i)
the Company has not, in the 12 months preceding the date hereof, received notice
from any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market; and (ii) the Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance
requirements.


    
      
         


      

      
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    (x)        
   Application of Takeover
Protections.  The Company and the Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation as a result of the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities.

     

    (y)           Disclosure.  Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents and the Senior Lender Loan Agreement,
the material terms of which are set forth on Schedule 3.1(y) (all
of which shall be publicly disclosed substantially contemporaneous with the
disclosure of this Agreement as required by Section 4.6), the Company confirms
that neither it nor any other Person acting on its behalf has provided any of
the Purchasers or their agents or counsel with any information that it believes
constitutes or might constitute material, nonpublic information.  The
Company understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the
Company.  All disclosure furnished by or on behalf of the Company to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement, is
true and correct and does not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.   The press releases disseminated by the Company
during the twelve months preceding the date of this Agreement taken as a whole
do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made and
when made, not misleading.  The Company acknowledges and agrees that
no Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

     

    (z)         
  No
Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

     

    (aa)          Indebtedness.  Schedule 3.1(aa) sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments.  For the purposes of this Agreement, “Indebtedness” means
any liabilities for borrowed money or amounts owed in excess of $50,000 (other
than trade accounts payable incurred in the ordinary course of
business.


    
      
         


      

      
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    (bb)         Tax
Status.  Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect or as otherwise set forth in Schedule 3.1(bb), the
Company and each Subsidiary has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.

     

    (cc)          No General
Solicitation. Neither the Company nor any person acting on behalf of the
Company has offered or sold any of the Securities by any form of general
solicitation or general advertising.  The Company has offered the
Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

     

    (dd)         Foreign Corrupt
Practices.  Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has: (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in violation of law or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.

     

    (ee)          Accountants.  The
Company’s present accounting firm is Asher & Company, Ltd.  To the
knowledge and belief of the Company, such accounting firm is an independent
registered public accounting firm as required by the Exchange Act.

     

    (ff)           Seniority.  Except
for the Senior Debt and July Debentures, or as otherwise set forth on Schedule 3.1(ff), as
of the Closing Date, no Indebtedness or other claim against the Company is
senior to the Debentures in right of payment, whether with respect to interest
or upon liquidation or dissolution, or otherwise, other than indebtedness
secured by purchase money security interests (which is senior only as to
underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby).

     

    (gg)         No Disagreements with
Accountants and Lawyers.  Except as noted in Schedule 3.1(gg): (i)
there are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants and
lawyers formerly or presently employed by the Company; and (ii) the Company is
current with respect to any fees owed to its accountants and lawyers which could
affect the Company’s ability to perform any of its obligations under any of the
Transaction Documents.


    
      
         


      

      
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      (hh)        Acknowledgment Regarding
Purchasers’ Purchase of Securities.  The Company acknowledges
and agrees that each of the Purchasers is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated thereby.  The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities.  The Company further
represents to each Purchaser that the Company’s decision to enter into this
Agreement and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.

       

      (ii)           Acknowledgment Regarding
Purchasers’ Trading Activity.  Notwithstanding anything in this
Agreement or elsewhere herein to the contrary (except for Sections 3.2(f) and
4.15 hereof), it is understood and acknowledged by the Company that: (i) none of
the Purchasers has been asked to agree by the Company, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term, (ii) past or future
open market or other transactions by any Purchaser, specifically including,
without limitation, Short Sales or “derivative” transactions, before or after
the closing of this or future private placement transactions, may negatively
impact the market price of the Company’s publicly-traded securities, (iii) any
Purchaser, and counter-parties in “derivative” transactions to which any such
Purchaser is a party, directly or indirectly, may presently have a “short”
position in the Common Stock and (iv) each Purchaser shall not be deemed to have
any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further
understands and acknowledges that (y) one or more Purchasers may engage in
hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Underlying Shares deliverable with respect to Securities are being
determined, and (z) such hedging activities (if any) could reduce the value of
the existing stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted.  The Company acknowledges
that such aforementioned hedging activities do not constitute a breach of any of
the Transaction Documents.

       

      (jj)           Regulation M
Compliance.  The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii) and
(iii), compensation paid to the Collateral Agent.


      
        
           


        

        
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      3.2          Representations and
Warranties of the Purchasers.  Each Purchaser, for itself and
for no other Purchaser, hereby represents and warrants as of the date hereof and
as of the Closing Date to the Company as follows:

       

      (a)           Organization;
Authority.  Such Purchaser if an entity, is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power
and authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution and delivery of the Transaction Documents and
performance by such Purchaser of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate or
similar action on the part of such Purchaser.  Each Transaction
Document to which a Purchaser is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

       

      (b)           Own
Account.  Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting such Purchaser’s right to sell
the Securities pursuant to a Registration Statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law.  Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its
business.

       

      (c)           Purchaser
Status.  At the time such Purchaser was offered the Securities,
such Purchaser was, and as of the date hereof such Purchaser is, and on each
date on which such Purchaser exercises any Warrants or converts any Debentures
such Purchaser will be either: (i) an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act.  Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.


      
        
           


        

        
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      (d)           Experience of Such
Purchaser.  Such Purchaser, either alone or together with his
or its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.  Such Purchaser is able to bear
the economic risk of an investment in the Securities and, at the present time,
is able to afford a complete loss of such investment.

       

      (e)           General
Solicitation.  Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

       

      (f)           Short Sales and Confidentiality Prior To The
Date Hereof.  Other than consummating the transactions
contemplated hereunder, such Purchaser has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such
Purchaser, executed any purchases or sales, including Short Sales, of the
securities of the Company during the period commencing from the time that such
Purchaser first received a term sheet (written or oral) from the Company or any
other Person representing the Company setting forth the material terms of the
transactions contemplated hereunder until the date hereof (“Discussion
Time”).  Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.  Other than to
other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein
shall constitute a representation or warranty, or preclude any actions, with
respect to the identification of the availability of, or securing of, available
shares to borrow in order to effect short sales or similar transactions in the
future.

       

      ARTICLE
IV.

      OTHER
AGREEMENTS OF THE PARTIES

       

      4.1          Transfer
Restrictions.

       

      (a)           The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act.  As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
a Purchaser under this Agreement.


      
        
           


        

        
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      (b)           The
Purchasers agree to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:

       

      [NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS [NOT] 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 [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

       

      The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured
parties.  Such a pledge or transfer would not be subject to approval
of the Company and no legal opinion of legal counsel of the pledgee, secured
party or pledgor shall be required in connection therewith.  Further,
no notice shall be required of such pledge.  At the appropriate
Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities , including, if the
Securities are subject to registration pursuant to Section 4.18, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders
thereunder.


      
        
           


        

        
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      (c)           Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement
(including a Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are
eligible for sale under Rule 144, without the requirement for the Company to be
in compliance with the current public information required under Rule 144 as to
such Underlying Shares and without volume or manner-of-sale restrictions or (iv)
if such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the Commission). The Company shall cause its counsel to issue a legal opinion
to the Transfer Agent if promptly after the Effective Date required by the
Transfer Agent to effect the removal of the legend hereunder.  If all
or any portion of a Debenture is converted or Warrant is exercised at a time
when there is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule 144,
without volume or manner-of-sale restrictions or if such legend is not otherwise
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) then
such Underlying Shares shall be issued free of all legends.  The
Company agrees that following such time as such legend is no longer required
under this Section 4.1(c), it will, no later than three Trading Days following
the delivery by a Purchaser to the Company or the Transfer Agent of a
certificate representing Underlying Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other
legends.  The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section 4.  Certificates for Underlying Shares subject
to legend removal hereunder shall be transmitted by the Transfer Agent to the
Purchaser by crediting the account of the Purchaser’s prime broker with the
Depository Trust Company System as directed by such Purchaser.

       

      (d)           (i)           In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the
date such Securities are submitted to the Transfer Agent) delivered for removal
of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages have begun
to accrue) for each Trading Day after the second Trading Day following the
Legend Removal Date (the “Legend Removal
Deadline”) until such certificate is delivered without a
legend.  Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Company’s failure to deliver certificates representing
any Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.


      
        
           


        

        
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      (ii)          Notwithstanding
anything to the contrary contained herein, if at any time prior to the Senior
Creditor Repayment (as defined in the July Senior Lender Intercreditor
Agreement) the Company is prohibited from paying, and the Purchasers are
prohibited from receiving, cash payments of liquidated damages pursuant to
Section 4.1(d)(i) above, at the option of each Purchaser on written notice to
the Company, such amounts otherwise payable in cash pursuant to Section
4.1(d)(i) shall either accrue, or be payable in the form of shares of Common
Stock.  The price at which shares of Common Stock issuable in lieu of
the cash payment of liquidated damages hereunder shall be equal to the least of
(x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date
of the applicable Legend Removal Deadline, (y) 90% of the average of the 5
consecutive VWAPs immediately prior to the date such shares are actually issued,
and (z) the then applicable Conversion Price.

       

      (e)           Each
Purchaser, severally and not jointly with the other Purchasers, agrees that such
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with the
plan of distribution set forth therein, and acknowledges that the removal of the
restrictive legend from certificates representing Securities as set forth in
this Section 4.1 is predicated upon the Company’s reliance upon this
understanding.

       

      4.2           Acknowledgment of
Dilution.  The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market
conditions.  The Company further acknowledges that, subject to the
limitation that the Company is under no obligation to issue Underlying Shares
until the Authorized Share Approval, its obligations under the Transaction
Documents, including, without limitation, its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.

       

      4.3          Furnishing of Information;
Public Information.

       

      (a)           From
August 19, 2009 until the time that no Purchaser owns Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within  the applicable grace period) all reports to be filed by the
Company after the date hereof pursuant to the Exchange Act.  As long
as any Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule
144.  The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144. Upon a cashless exercise of the Warrant, the holding
period for purpose of Rule 144 shall tack back to the original date of issuance
of such Warrants.  Notwithstanding anything to the contrary contained
herein, the Company shall be under no obligation to file its delinquent Form
10-K for the year ended December 31, 2008 or its delinquent Form 10-Q for the
quarter ended March 31, 2009 until August 14, 2009 (or August 19, 2009 if timely
filing of a Form 12b-25 is made).


      
        
           


        

        
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      (b)           At
any time during the period commencing from the six (6) month anniversary of the
date hereof and ending at such time that all of the Securities may be sold
without the requirement for the Company to be in compliance with Rule 144(c)(1)
and otherwise without restriction or limitation pursuant to Rule 144, if the
Company shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) (a “Public Information
Failure”) then, in addition to such Purchaser’s other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated damages and
not as a penalty, by reason of any such delay in or reduction of its ability to
sell the Securities, an amount in cash equal to two percent (2.0%) of the
aggregate Subscription Amount of such Purchaser’s Securities on the day of a
Public Information Failure and on every thirtieth (30th) day (pro rated for
periods totaling less than thirty days) thereafter until the earlier of (a) the
date such Public Information Failure is cured and (b) such time that such public
information is no longer required  for the Purchasers to transfer the
Underlying Shares pursuant to Rule 144.  The payments to which a
Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to
herein as “Public
Information Failure Payments.”  Public Information Failure
Payments shall be paid on the earlier of (i) the last day of the calendar month
during which such Public Information Failure Payments are incurred and (ii) the
third (3rd) Business Day after the event or failure giving rise to the Public
Information Failure Payments is cured.  In the event the Company fails
to make Public Information Failure Payments in a timely manner, such Public
Information Failure Payments shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full. Nothing herein shall limit
such Purchaser’s right to pursue actual damages for the Public Information
Failure, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

       

      (c)           Notwithstanding
anything to the contrary contained herein, if at any time prior to the Senior
Creditor Repayment (as defined in the July Senior Lender Intercreditor
Agreement) the Company is prohibited from paying, and the Purchasers are
prohibited from receiving, cash payments of liquidated damages pursuant to
Section 4.3(b) above, at the option of each Purchaser on written notice to the
Company, such amounts otherwise payable in cash pursuant to Section 4.3(b) shall
either accrue, or be payable in the form of shares of Common
Stock.  The price at which shares of Common Stock issuable in lieu of
the cash payment of liquidated damages hereunder shall be equal to the least of
(x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date
of the applicable Public Information Failure, (y) 90% of the average of the 5
consecutive VWAPs immediately prior to the date such shares are actually issued,
and (z) the then applicable Conversion Price.


      
        
           


        

        
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      4.4           Integration.  The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities to the
Purchasers in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.

       

      4.5           Conversion and Exercise
Procedures.  Each of the Purchasers agrees the he/she/it:
(i)  will not convert their Debenture or exercise their Warrant until
such time as the Authorized Share Approval has occurred; and (ii) grants to each
executive officer of the Company an irrevocable proxy to vote all shares of
Common Stock owned by the Purchaser in favor of the Authorized Share
Approval.  Each of the form of Notice of Exercise included in the
Warrants and the form of Notice of Conversion included in the Debentures set forth the totality
of the procedures required of the Purchasers in order to exercise the Warrants
or convert the Debentures.  No additional legal opinion, other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Debentures.  The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.

       

      4.6           Securities Laws Disclosure;
Publicity.  The Company shall, by 8:30 a.m. (New York City
time) on or before the second Trading Day immediately following the date hereof,
issue a Current Report on Form 8-K disclosing the material terms of the
transactions contemplated hereby and including the Transaction Documents as
exhibits thereto.  The Company and each Purchaser shall consult with
each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release nor otherwise make any such public statement without the
prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with respect to any
press release of the Company, which consent shall not unreasonably be withheld
or delayed, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication.  Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except: (a) as required by federal securities law in connection with
(i) any registration statement contemplated by Section 4.18 of this Agreement
and (ii) the filing of final Transaction Documents (including signature pages
thereto) with the Commission and (b) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under this clause
(b).

       

      4.7           Shareholder Rights
Plan.  No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the
Purchasers.


      
        
           


        

        
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      4.8           Non-Public
Information.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it, nor any other Person acting on its
behalf, will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information.  The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.

       

      4.9           Use of
Proceeds.  Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and shall not use such proceeds for: (a)
the satisfaction of any portion of the Company’s debt (other than payment of
trade payables in the ordinary course of the Company’s business and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents
or (c) the settlement of any outstanding litigation.

       

      4.10         Indemnification of
Purchasers.   Subject to the provisions of this Section
4.10, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
“Purchaser
Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance).  If any action shall be brought against any Purchaser
Party in respect of which indemnity may be sought pursuant to this Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of its
own choosing reasonably acceptable to the Purchaser Party.  Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party, in which case the Company shall be responsible for the
reasonable fees and expenses of no more than one such separate
counsel.  The Company will not be liable to any Purchaser Party under
this Agreement (y) for any settlement by a Purchaser Party effected without the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (z) to the extent, but only to the extent that a loss, claim, damage
or liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents.


      
        
           


        

        
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      4.11        Reservation and Listing of
Securities.

       

      (a)           Following
the Authorized Share Approval, the Company shall maintain a reserve from its
duly authorized shares of Common Stock for issuance pursuant to the Transaction
Documents at least equal to the Required Minimum as of such date.

       

      (b)           If,
on any date after the date of the Authorized Share Approval, the number of
authorized but unissued (and otherwise unreserved) shares of Common Stock is
less than the Required Minimum on such date, then the Board of Directors shall
use commercially reasonable efforts to amend the Company’s certificate or
articles of incorporation to increase the number of authorized but unissued
shares of Common Stock to at least the Required Minimum at such time, as soon as
possible and in any event not later than the 75th day after such
date.

       

      (c)           The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on such Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing and (iv) maintain the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market.

       

      (d)           In
addition, the Company shall hold a special meeting of shareholders (which may
also be at the annual meeting of shareholders) at the earliest practical date
following the date hereof, and in any event within 50 calendar days following
the clearance by the Securities and Exchange Commission of the preliminary proxy
statement previously filed by the Company (so that the Company shall be
permitted to mail its final proxy statement to its shareholders) for the purpose
of obtaining the Authorized Share Approval, with the recommendation of the
Company’s Board of Directors that such proposal be approved, and the Company
shall solicit proxies from its shareholders in connection therewith in the same
manner as all other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of such
proposal.  In addition, the Company agrees to use its best efforts to
promptly respond to any comments the Commission may have with respect to the
preliminary proxy statement.  If the Company does not obtain the
Authorized Share Approval at the first meeting, the Company shall call a meeting
every 30 days thereafter or adjourn the existing meeting and reconvene that
meeting every 30 days thereafter to seek Authorized Share Approval until the
earlier of the date the Authorized Share Approval is obtained or the Debentures
and Warrants are no longer outstanding.


      
        
           


        

        
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      (e)           The
parties acknowledge that presently the Company’s Common Stock is quoted on the
Pink Sheets.  Following the filing by the Company of all periodic
filings with the SEC as necessary to return the Company’s Common Stock for
eligibility for resale pursuant to Rule 144, the Company agrees to use its best
efforts to reinstate the Common Stock for quotation on the OTC Bulletin Board or
to qualify its Common Stock for quotation on another Trading
Market.

       

      4.12        Participation in Future
Financing.

       

      (a)           Other
than the Senior Debt, from the date hereof until the date that the Debentures
are no longer outstanding, upon any issuance by the Company or any of its
Subsidiaries of Common Stock, Common Stock Equivalents, Indebtedness (or a
combination of units hereof) (a “Subsequent
Financing”), the Purchasers and holders of the Other Debentures,
collectively (pro rata based on their respective subscription amounts for the
Debentures and Other Debentures) shall have the right to participate in an
amount of the Subsequent Financing equal to 30% of the Subsequent Financing (the
“Participation
Maximum”) on the same terms, conditions and price provided for in the
Subsequent Financing..

       

      (b)           At
least 5 Trading Days prior to the closing of the Subsequent Financing, the
Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing
Notice”).  Upon the request of a Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than 1 Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser.  The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder
and the Person or Persons through or with whom such Subsequent Financing is
proposed to be effected and shall include a term sheet or similar document
relating thereto as an attachment.

       

      (c)           Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 5th Trading
Day after all of the Purchasers have received the Pre-Notice that the Purchaser
is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice.  If the Company receives no notice from a Purchaser as of such
5th
Trading Day, such Purchaser shall be deemed to have notified the Company that it
does not elect to participate.


      
        
           


        

        
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      (d)           If
by 5:30 p.m. (New York City time) on the 5th Trading
Day after all of the Purchasers have received the Pre-Notice, notifications by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) are, in the aggregate, less than
the total amount of the Subsequent Financing, then the Company may effect the
placement of the remaining portion of the Participation Maximum of such
Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice.

       

      (e)           If
by 5:30 p.m. (New York City time) on the 5th Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking to
purchase more than the aggregate amount of the Participation Maximum, each such
Purchaser shall have the right to purchase its Pro Rata Portion (as defined
below) of the Participation Maximum.  “Pro Rata Portion”
means the ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date by a Purchaser participating under this Section 4.12 and (y) the
sum of the aggregate Subscription Amounts of Securities purchased on the Closing
Date by all Purchasers participating under this Section 4.12.

       

      (f)           The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above in
this Section 4.12, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 30 Trading Days after the date of the
initial Subsequent Financing Notice.

       

      (g)           Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt
Issuance, or (ii) an underwritten public offering of Common Stock.

       

      4.13        Subsequent Equity
Sales.

       

      (a)           From
the date hereof until 90 days after the Effective Date, neither the Company nor
any Subsidiary shall issue shares of Common Stock or Common Stock
Equivalents.

       

      (b)           From
the date hereof until such time as no Purchaser holds any of the Securities, the
Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a Variable Rate Transaction. “Variable Rate
Transaction” means a transaction in which the Company issues or sells (i)
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion price, exercise price or exchange rate or other
price that is based upon and/or varies with the trading prices of or quotations
for the shares of Common Stock at any time after the initial issuance of such
debt or equity securities or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial issuance of
such debt or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the
market for the Common Stock or (ii) enters into any agreement, including, but
not limited to, an equity line of credit, whereby the Company may sell
securities at a future determined price.     Any
Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages.

       

      
        
           


        

        
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      (c)           Unless
and until the Authorized Share Approval is obtained, neither the Company nor any
Subsidiary shall issue any Common Stock or Common Stock
Equivalents.  Any Purchaser shall be entitled to obtain injunctive
relief against the Company to preclude any such issuance, which remedy shall be
in addition to any right to collect damages.

       

      (d)           Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.

       

      4.14         Equal Treatment of
Purchasers.  Except as noted below, no consideration (including
any modification of any Transaction Document) shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents. Further, the Company shall not
make any payment of principal or interest on the Debentures in amounts which are
disproportionate to the respective principal amounts outstanding on the
Debentures at any applicable time unless approved by the Holders of at least 67%
of the outstanding principal amount of the Debentures then
outstanding.  Notwithstanding anything to the contrary contained
herein, the Company shall be permitted: (i) to fund redemptions of the Second
Tranche Debentures (as that term is defined in the July Purchase Agreement) to
the extent permitted under Section 2.2 of the July Purchase Agreement; (ii) to
adjust the conversion price of the Second Tranche Debentures and of other
debentures held by the holders of the Second Tranche Debentures as permitted
under the July Purchase Agreement; and (iii) with the consent of the Collateral
Agent, to redeem in the aggregate not greater than $250,000 of principal amount
of debentures issued by the Company on such terms and conditions they deem
necessary and proper from any person or entity.  Except for the
adjustments in conversion price benefitting the Holders of Second Tranche
Debentures (and the adjustments to their Other Debentures set forth in this
Section 4.14), none of the adjustments to the exercise prices of the Debentures
or Other Debentures per the terms of this Section 4.14 shall adjust in any
manner the number of shares purchasable under or the exercise price of the
Dentures, the Other Debentures, the Warrants or the warrants issued to the
holders of the Other Debentures.


      
        
           


        

        
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      4.15         Short Sales and
Confidentiality After The Date Hereof. Each Purchaser, severally and not
jointly with the other Purchasers, covenants that neither it, nor any Affiliate
acting on its behalf or pursuant to any understanding with it, will execute any
Short Sales during the period commencing with the Discussion Time and ending at
such time the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.6.  Each Purchaser, severally and not
jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Transaction Documents and the Disclosure
Schedules.  Notwithstanding the foregoing, no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in Short
Sales in the securities of the Company after the time that the transactions
contemplated by this Agreement are first publicly announced as described in
Section 4.6; provided, however, each Purchaser agrees, severally and not jointly
with any other Purchasers, that they will not enter into any Net Short Sales (as
hereinafter defined) from the period commencing on the Closing Date and ending
on the date that is the earlier of (x) the 6-month anniversary of the Closing
Date or (y) the date that such Purchaser no longer holds any Debentures. 
For purposes of this Section 4.15, a “Net Short Sale” by
any Purchaser shall mean a sale of Common Stock by such Purchaser that is marked
as a short sale and that is made at a time when there is no equivalent
offsetting long position in Common Stock held by such Purchaser.  For
purposes of determining whether there is an equivalent offsetting long position
in Common Stock held by the Purchaser, Underlying Shares that have not yet been
converted pursuant to the Debentures and Warrant Shares that have not yet been
exercised pursuant to the Warrants shall be deemed to be held long by the
Purchaser, and the amount of shares of Common Stock held in a long position
shall be all unconverted Underlying Shares and unexercised Warrant
Shares (ignoring any exercise limitations included therein) issuable to such
Purchaser on such date, plus any shares of Common Stock or other Common Stock
Equivalents (other than the unconverted Underlying Shares and unexercised
Warrant Shares described in this sentence) otherwise then held by such
Purchaser.  Notwithstanding the foregoing, in the case of a Purchaser that
is a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.

       

      4.16         Form D; Blue Sky
Filings.  The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of any Purchaser. The Company shall take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to qualify the Securities for, sale to the Purchasers at
the Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Purchaser.

       

      4.17         Capital
Changes.  Until the one year anniversary of the Effective Date,
other than in connection with a Permitted Reverse Stock Split (as defined
below), the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in principal amount outstanding of the Debentures.
As used herein, a “Permitted Reverse Stock Split” is a reverse stock split of
the Common Stock that is approved on or before April 15, 2010 for purposes of
satisfying minimum bid requirements of the New York Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, and
is effective contemporaneous with, or immediately prior to, the approval of the
Common Stock for listing on the New York Stock Exchange, the Nasdaq Capital
Market, the Nasdaq Global Market or the Nasdaq Global Select
Market.


      
        
           


        

        
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      4.18         Registration Rights.
If at any time after the date hereof, the Company shall determine to prepare and
file with the Commission a Registration Statement relating to an offering for
its own account or the account of others of any of its equity securities, other
than on Form S-4 or Form S-8 (each as promulgated under the Securities Act), or
their then equivalents, relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans, then,
subject to SEC Guidance (as defined in the March Registration Rights Agreement)
the Company shall send a written notice of such determination to each Purchaser
and, if within ten calendar days after the date of delivery of such notice, any
such Purchaser shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Underlying Shares as the Purchaser
requests to be registered so long as such Underlying Shares are proposed to be
disposed of in the same manner as those securities set forth in the Registration
Statement, subject to pro rata cutback of the Purchasers (based upon the
respective amounts of their Underlying Shares that are proposed for
registration) and all other security holders proposed to be included in such
Registration Statement, to the extent that all of the shares proposed for
registration shall not be permitted due to SEC Guidance with respect to Rule
415.  The Company shall use its best efforts to cause any Registration
Statement to be declared effective by the Commission as promptly as is possible
following it being filed with the Commission and to remain effective until all
Underlying Shares subject thereto have been sold.  All fees and
expenses incident to the performance of or compliance with this Section 4.18 by
the Company shall be borne by the Company whether or not any Underlying Shares
are sold pursuant to the Registration Statement.  The Company shall
indemnify and hold harmless the Purchasers, the officers, directors, members,
partners, agents, brokers, investment advisors and employees of each of them,
each person who controls the Purchasers (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), and the officers, directors,
members, shareholders, partners, agents and employees of each such controlling
person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable attorneys’ fees) and expenses (collectively, the “Losses”), as
incurred, arising out of or relating to (i) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
prospectus included therein or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading or (ii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act or
any state securities law, or any rule or regulation thereunder, in connection
with the performance of its obligations under this Section 4.18, except to the
extent, but only to the extent, that such untrue statements or omissions
referred to in (i) above are based solely upon information regarding such
Purchaser furnished in writing to the Company by such Purchaser expressly for
use therein, or to the extent that such information relates to such Purchaser or
such Purchaser’s proposed method of distribution of Underlying Shares and was
reviewed and expressly approved in writing by such Purchaser expressly for use
in the Registration Statement, such prospectus or such form of prospectus or in
any amendment or supplement thereto. The rights of the Purchasers under this
Section 4.18 shall survive until all Underlying Shares have been either
registered under a Registration Statement or been sold pursuant to an exemption
to the registration requirements of the Securities Act.


      
        
           


        

        
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      4.19         Removal of Subordination
Legend.   Following the Senior Creditor Repayment (as defined
in the July Senior Lender Intercreditor Agreement), within 3 Business Days of a
written request from any Purchaser, the Company hereby agrees to issue such
Purchaser a replacement Debenture, without the restrictive legend referencing
the July Senior Lender Intercreditor Agreement, and otherwise in the same form
of such Purchaser’s Debenture.

       

      4.20         Certain Permitted Payments
under the July Senior Lender Intercreditor Agreement.  In
connection with “Permitted Payments” (as defined in the July Senior Lender
Intercreditor Agreement) pursuant to Section 2(c)(iv) thereunder, no less than
ten (10) days prior to the due date of such Quarterly Redemption Amounts (as
defined in the Debentures) as described in such Section, the Company agrees to
deliver each Purchaser a written certification of compliance with the financial
covenants under the Senior Lender Loan Agreement for the month prior to the date
such Quarterly Redemption Amount is due, and if requested in writing by a
Purchaser and subject to Section 4.8 hereunder, calculations in reasonable
detail evidencing compliance with such financial covenants.

       

      4.21         Other
Agreement(s).  Intentionally
Deleted.

       

      ARTICLE
V.

      MISCELLANEOUS

       

      5.1           Termination. 
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before July 31, 2009;
provided, however, that such
termination will not affect the right of any party to sue for any breach by the
other party (or parties).

       

      5.2           Fees and
Expenses.  Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement.  The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchasers.


      
        
           


        

        
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      5.3           Entire Agreement,
Release.  The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.  Any obligations of the Company to each Purchaser named
herein and note eliminated as a result of the Subscription Amount hereof shall
remain in full force and effect.  In consideration of the undertakings
of each Purchaser hereunder, the Company on behalf of itself and each of its
subsidiaries hereby releases each Purchaser from and against any loss, liability
or claim that the Company or any of its subsidiaries may have against each
Purchaser and each of its shareholders from the beginning of time through the
date of this Agreement.

       

      5.4           Notices.  Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of: (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service or (d) upon actual receipt by the party to whom such
notice is required to be given.  The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.

       

      5.5           Amendments;
Waivers.  No provision of this Agreement or right under this
Agreement  may be waived, modified, supplemented or amended except in
a written instrument signed by the Company and the Purchasers holding at least
67% of the aggregate principal amount of the Debentures then
outstanding.  No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right.

       

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

       

      5.7           Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns.  The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser (other
than by merger).  Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided that such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchasers.”

       

      5.8           No Third-Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.10.


      
        
           


        

        
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      5.9           Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents 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 conflicts of law
thereof.  Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, Borough of Manhattan 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 any such court, that such suit, action or proceeding is
improper or is an 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
Agreement 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 law.   If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.

       

      5.10         Survival.  The
representations and warranties shall survive the Closing and the delivery of the
Securities for the applicable statute of limitations.

       

      5.11         Execution.  This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart.  In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

       

      5.12         Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.


      
        
           


        

        
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      5.13         Rescission and Withdrawal
Right.  Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights; provided, however, that in the
case of a rescission of a conversion of a Debenture or exercise of a Warrant,
the Purchaser shall be required to return any shares of Common Stock subject to
any such rescinded conversion or exercise notice.

       

      5.14         Replacement of
Securities.  If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction.  The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.

       

      5.15         Remedies.  In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will
be entitled to specific performance under the Transaction
Documents.  The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.

       

      5.16         Payment Set Aside. To
the extent that the Company makes a payment or payments to any Purchaser
pursuant to any Transaction Document or a Purchaser enforces or exercises its
rights thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.


      
        
           


        

        
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      5.17         Usury.  To
the extent it may lawfully do so, the Company hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document.  Notwithstanding
any provision to the contrary contained in any Transaction Document, it is
expressly agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate.  It is agreed that if
the maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law.  If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser’s election.

       

      5.18         Independent Nature of
Purchasers’ Obligations and Rights.  The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document.  Except as noted below,
contained herein or in any other Transaction Document, and no action taken by
any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Notwithstanding the foregoing, the terms of
the Security Agreement, which include the rights of the Collateral Agent to act
on behalf of all of the holders of Debentures shall govern, and each Holder
agrees that so long as a Collateral Agent remains in place under the Security
Agreement, it will not take independent action to enforce its rights under the
Security Agreement.  Each Purchaser shall be entitled to independently
protect and enforce its rights (except as noted above), including, without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such
purpose.  Each Purchaser has been represented by its own separate
legal counsel in their review and negotiation of the Transaction
Documents.  The Company has elected to provide all Purchasers with the
same terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.

       

      5.19         Liquidated
Damages.  The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been
canceled.

       

      5.20         Saturdays, Sundays,
Holidays, etc. If the last or appointed day for the taking of any action
or the expiration of any right required or granted herein shall not be a
Business Day, then such action may be taken or such right may be exercised on
the next succeeding Business Day.

       

      
        
           


        

        
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      5.21         Construction. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto. In addition, each and
every reference to share prices in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement

       

      5.22         Counsel.  The
parties acknowledge that Shefsky & Froelich Ltd. (“S&F”) serves as
counsel for many of the Company’s matters.  Because S&F may be a
Purchaser hereunder, it has advised the Company and each of its subsidiaries
that in drafting this Agreement and the associated Transaction Documents as they
relate to an investment in the Debentures or associated Warrants, it has served
as counsel solely for itself, and not on behalf of any of the parties hereto or
their Affiliates (collectively, the “Other Parties”).  It has further
advised the Other Parties and the Company that a conflict of interest may be
deemed to exist as a result of such relationship and provision of legal services
and has advised all of them to consult with independent counsel to represent
their respective interests.  Each of the parties signatory hereto
acknowledges having been advised of the foregoing, expressly waives any
assertion of conflict of interest, and consents to the terms of this Agreement
and preparation of the other Transaction Documents by S&F.

       

      5.23         WAIVER OF
JURY TRIAL.  IN ANY ACTION, SUIT, OR
PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE
PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY.

       

      [SIGNATURE
PAGES FOLLOW]


      
        
           


        

        
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      IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

      


      
        
          
            
              
                
                  	
                          CAPITAL
      GROWTH SYSTEMS, INC.

                        	 
      	
                          Address for Notice:

                        
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                          Attention
      Chief Executive Officer

                        
	 
      	 
      	 
      	
                          200
      S. Wacker, Suite 1650

                        
	 
      	 
      	 
      	
                          Chicago,
      Illinois 60606

                        
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                          Facsimile:
      312-673-2422

                        
	
                          By: 

                        	
                              /s/ Patrick
      Shutt

                        	 
      	 
      
	 
      	
                          Name:  Patrick
      Shutt

                        	 
      	 
      
	 
      	
                          Title:  CEO

                        	 
      	 
      


                

              

            

          

        

      

      


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OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
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