Exhibit
      4.18 


    
      
        	
                Serial
                  No:

              	 	
                Name

              	 	
                Amount

              	 
	
                1.   
                  2006-A

              	 	 	
                Bancorp
                  of Rantoul

              	 	
                $

              	
                113,568

              	 
	
                2.   
                  2006-B

              	 	 	
                Thomas
                  Bryan

              	 	
                $

              	
                113,568

              	 
	
                3. 
                   2006-C

              	 	 	
                Dennis
                  Long

              	 	
                $

              	
                113,568

              	 
	
                4.  
                  2006-D

              	 	 	
                Steven
                  Combest 

              	 	
                $

              	
                75,296

              	 
	
                TOTAL:

              	 	 	 	 	
                $

              	
                416,000

              	 


      

    

     

    THIS
      DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE “ACT”), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO
      RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
      STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER THE ACT AND
      APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO
      THE
      ISSUER THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
      ANY APPLICABLE STATE SECURITIES LAWS. BUYERS SHOULD BE AWARE THAT THEY MAY
      BE
      REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
      OF TIME.

    


    9.0%
      CONVERTIBLE SUBORDINATED

    DEBENTURE
      DUE 2011


    
      	$416,000 	
               June
                1,
                2006

            


    

     

    For
      value
      received, ATSI Communications, Inc., a Nevada corporation (the “Company”),
      with
      principal offices at 8600 Wurzbach, Suite 700W, San Antonio, Texas 78240, hereby
      promises to pay to Bancorp
      of Rantoul, Thomas Bryan, Dennis Long and Steven Combest or
      registered assigns, the sum of Four Hundred
      and Sixteen Thousand ($416,000).
      Prior to
      maturity, this Debenture will bear interest at a rate equal to 9% per annum,
      commencing on June 1, 2006. All past due payments shall bear interest at the
      rate of 18% per annum from the date due until paid. Principal of this Debenture
      shall be paid at the principal offices of the Company in five (5) equal
      payments, each consisting of $83,200
      on June
      1, 2006 and continuing on each June 1 thereafter. Interest on this Debenture
      shall be computed on the amount of principal outstanding from time to time
      and
      paid annually in arrears commencing on June 1, 2007 and on each June 1
      thereafter until all accrued and unpaid interest has been paid. 

    


    This
      Debenture is issued pursuant and subject to the terms, and entitled to the
      benefits, of that certain Securities Purchase Agreement dated as of June 1,
      2006
      (the “Securities
      Purchase Agreement”),
      by
      and among the Company and the Buyers named therein. 


    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

     

    1. DEFINITIONS.
      Unless otherwise defined herein, capitalized terms defined in the Securities
      Purchase Agreement and used herein shall have the meaning given to them in
      the
      Securities Purchase Agreement. The following terms have the meanings indicated:
      

    


    “Affiliate”
of
      the
      Company means any person or entity which, directly or indirectly, is in control
      of, is controlled by, or is under common control with, the Company. For purposes
      of this definition, “control” of a person or entity means the power,
directly
      or indirectly, to direct or cause the direction of the management and policies
      of such Person, whether through the ownership of voting securities, by contract
      or otherwise; and the terms “controlling” and “controlled” have meanings
      correlative of the foregoing.

    


    “Capitalized
      Lease Obligation”
means
      the obligations of the Company under a lease that are required to be classified
      and accounted for as capital lease obligations under GAAP and, for purposes
      of
      this definition, the amount of such obligations at any date shall be the
      capitalized amount of such obligations at such date, determined in accordance
      with GAAP.

    


    “Common
      Stock”
means
      any and all shares, interests, or other participations in, and other equivalents
      (however designated and whether voting or non-voting) of the Company’s common
      stock, par value $0.001 per share, whether outstanding on the date hereof
      or issued after the date hereof, and includes, without limitation, all series
      and classes of such common stock.

     

    “Company”
means
      ATSI Communications, Inc., a Nevada corporation, as defined above, and includes
      any corporation, which shall succeed to or assume the obligations of the Company
      under this Debenture. 

    


    “Conversion
      Date”
means
      the date on which any principal of, or interest on, this Debenture is deemed
      to
      be converted to Common Stock pursuant to Section 2 or Section 3
      hereof.

    


    “Conversion
      Price”
means
      the higher of (a) $0.27 per share or (b) the Market Price of the Common Stock
      as
      of the applicable date. The Conversion Price is subject to adjustment as
      provided herein. 

    


    “Conversion
      Stock”
means
      the shares of the Company’s Common Stock, issuable upon conversion of any
      principal of, or interest on, this Debenture. The number and character of shares
      of Conversion Stock are subject to adjustment as provided herein, and the term
      “Conversion Stock” shall include stock and other securities and property at any
      time receivable or issuable upon conversion of any principal of, or interest
      on,
      this Debenture in accordance with its terms. 

    


    “Currency
      Agreement”
means
      any foreign exchange contract, currency swap agreement or other similar
      agreement or arrangement designed to protect the Company against fluctuations
      in
      currency values.

    


    “Debenture”
means
      this Convertible Subordinated Debenture. 

    


    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    ““GAAP”
means
      generally accepted accounting principles set forth in the opinions and
      pronouncements of the Accounting Principles Board of the American Institute
      of
      Certified Public Accountants and statements and pronouncements of the Financial
      Accounting Standards Board or in such other statements by such other entity
      as
      may be approved by a significant segment of the accounting profession of the
      United States, as in effect from time to time.

    


    “Holder”
means
      any person who shall at the time be the registered holder of this Debenture.
      

    


    “Indebtedness”
means,
      without duplication, (i) all Obligations of the Company for borrowed money,
      (ii)
      all Obligations of the Company evidenced by bonds, debentures, or other similar
      instruments, (iii) all Capitalized Lease Obligations of the Company, (iv) all
      Obligations of the Company issued or assumed as the deferred purchase price
      of
      property (but excluding trade accounts payable and other accrued liabilities
      arising in the ordinary course of business that are not overdue by 180 days
      or
      more or are being contested in good faith by appropriate proceedings), (v)
      all
      Obligations for the reimbursement of any obligor on any letter of credit,
      banker’s acceptance or similar credit transaction, (vi) guarantees and other
      contingent Obligations in respect of indebtedness of other persons or entities
      of the type referred to in clauses (i) through (v) above and clause (viii)
      below, (vii) all Obligations of any other person or entity of the type referred
      to in clauses (i) through (vi) which are secured by any lien on any property
      or
      asset of the Company, the amount of such Obligation being deemed to be the
      lesser of the fair market value of such property or asset or the amount of
      the
      Obligation so secured, and (viii) all Obligations under Currency Agreements
      and
      Interest Swap Obligations of the Company.

    


    “Interest
      Swap Obligations”
means
      the Obligations of the Company pursuant to any arrangement with any other person
      or entity, whereby, directly or indirectly, the Company is entitled to receive
      from time to time periodic payments calculated by applying either a floating
      or
      a fixed rate of interest on a stated notional amount in exchange for periodic
      payments made by such other person or entity calculated by applying a fixed
      or a
      floating rate of interest on the same notional amount and shall include, without
      limitation, interest rate swaps, caps, floors, collars and similar
      agreements.

    


    “Market
      Price”
in
      reference to the Common Stock means (a) in the event such stock is traded on
      a
      national securities exchange or the automated quotation system of the National
      Association of Securities Dealers, the average of the last quoted transaction
      on
      the principal market for such stock on the ten (10) trading days immediately
      preceding the date as of which such value is to be determined, (b) in the event
      such stock is traded in the over-the-counter market as reported by the National
      Association of Securities Dealers or The Pink Sheets, LLC, the average of the
      closing bid and asked price of such stock on the ten (10) trading days
      immediately preceding the date as of which such value is to be determined,
      and
      (c) in all other events, the value of such stock on a going-concern basis,
      as
      determined by the Board of Directors of the Company in good faith or, in the
      Company’s discretion, by an appraiser mutually agreeable to the Holder and to
      the Company, the determination of such appraiser to be final in the absence
      of
      fraud or bad faith. 

    


    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    “Maturity
      Date”
means
      June 1, 2011. 

    


    “Obligations”
means
      all obligations for principal, premium, interest, penalties, fees, commissions,
      indemnifications, reimbursements, damages and other liabilities payable under
      the documentation governing any Indebtedness.

    


    “Senior
      Indebtedness”
means
      the principal of, premium in respect of, if any, and interest (including any
      interest accruing subsequent to the filing of a petition of bankruptcy or the
      commencement of any bankruptcy, insolvency, reorganization, receivership or
      other similar proceeding at the rate provided for in the documentation with
      respect thereto, whether or not such interest is an allowed claim under
      applicable law) on, fees and expenses (including costs of collection) in respect
      of, indemnity obligations on, and all other amounts and Obligations owing in
      respect of, any Indebtedness of the Company, whether outstanding on the date
      hereof or hereafter created, incurred or assumed, unless, in the case of any
      particular Indebtedness, the instrument creating or evidencing the same or
      pursuant to which the same is outstanding expressly provides that such
      Indebtedness shall not be senior in right of payment to this Debenture. Without
      limiting the generality of the foregoing, “Senior Indebtedness” shall also
      include the principal of, premium in respect of, interest (including any
      interest accruing subsequent to the filing of a petition of bankruptcy or the
      commencement of any bankruptcy, insolvency, reorganization, receivership or
      other similar proceeding at the rate provided for in the documentation with
      respect thereto, whether or not such interest is an allowed claim under
      applicable law) on, and all other amounts owing in respect of, (x) all Interest
      Swap Obligations and (y) all Obligations under Currency Agreements, in each
      case
      whether outstanding on the date hereof or hereafter incurred. Notwithstanding
      the foregoing, “Senior Indebtedness” shall not include (i) any Indebtedness of
      the Company to a subsidiary of the Company or any Affiliate of the Company
      or
      any of such Affiliate’s subsidiaries, (ii) Indebtedness of the Company to, or
      guaranteed by the Company on behalf of, any stockholder who beneficially owns
      more than ten (10%) percent of the equity securities of the Company, or any
      director, officer or employee of the Company or any subsidiary of the Company
      (including, without limitation, amounts owed for compensation), (iii)
      Indebtedness to trade creditors and other trade payables incurred in connection
      with obtaining goods, materials or services in the ordinary course of business,
      and (iv) any liability for federal, state, local or other taxes owed or owing
      by
      the Company.

    


    2. CONVERSION
      BY HOLDER. 

    


    2.1 Voluntary
      Conversion.
      The
      principal amount of this Debenture, and all accrued and unpaid interest thereon,
      may be converted at any time after the third anniversary of this Debenture,
      in
      the sole discretion of the Holder, into shares of Conversion Stock at the
      Conversion Price. The number of shares of Common Stock issuable upon conversion
      of this Debenture shall equal the principal amount hereof (and accrued interest
      thereon) divided by the Conversion Price. 

    


    2.2 Exercise
      of Conversion Privilege.
      In
      order to convert this Debenture, the Holder shall present this Debenture to
      the
      Company at the office of the Company, accompanied by written notice to the
      Company that the Holder elects to convert this Debenture. As soon as practicable
      after the receipt of such notices and the presentation of this Debenture, the
      Company shall issue to the Holder a certificate or certificates for the number
      of shares of Conversion Stock issuable upon the conversion of the principal
      amount of this Debenture and the accrued and unpaid interest thereon. Such
      conversion shall be deemed to have been effected as of the close of business
      on
      the date on which such notice shall have been received by the Company and this
      Debenture shall have been presented as aforesaid, and conversion shall be at
      the
      Conversion Price in effect at such time, and at such time the rights of the
      Holder of this Debenture as the holder of such Debenture shall cease and the
      Holder shall be deemed to have become the holder of record of the shares of
      the
      Conversion Stock issued therefor. 

    


    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

       

    

    3.  CONVERSION
      BY COMPANY.

    


    3.1  Voluntary
      Conversion.
      The
      principal amount of this Debenture, or any installment of principal, may be
      converted at any time, and interest accrued on this Debenture may be converted
      from time to time as it becomes payable, in the sole discretion of the Company,
      into shares of Conversion Stock at the Conversion Price. The number of shares
      of
      Common Stock issuable upon conversion of the principal of, or any interest
      accrued on, this Debenture shall equal the amount of such principal or interest
      divided by the Conversion Price on the relevant Conversion Date.

    


    3.2 Exercise
      of Conversion Privilege.
      The
      Company shall provide the Holder not less than 20 days’ notice (the
“Conversion
      Notice”)
      specifying the Conversion Date and stating whether all or any installment of
      principal and accrued and unpaid interest thereon, or only accrued interest,
      will be converted and the amount thereof. On the Conversion Date, or as soon
      thereafter as reasonably practical, the Company shall issue the Holder a
      certificate or certificates for the number of shares of Conversion Stock
      issuable upon conversion of such principal or interest. Such conversion shall
      be
      deemed effective on the close of business on the Conversion Date, at which
      time
      the rights of the Holder to receive payment of such principal or interest shall
      cease and the Holder’s sole and exclusive right under the Debenture shall be to
      receive the Conversion Stock for the converted principal of, or accrued and
      unpaid interest on, this Debenture. The Holder shall be deemed to have become
      the Holder of record of the shares of the Conversion Stock upon receipt of
      the
      Conversion Notice. 

    


    4. ISSUANCE
      OF CONVERSION STOCK. As soon as practicable after conversion of this Debenture,
      any installment of principal, or any interest accrued hereon, the Company,
      at
      its expense, will cause to be issued in the name of and delivered to the Holder,
      a certificate or certificates for the number of shares of Conversion Stock
      to
      which the Holder shall be entitled upon such conversion (bearing such legends
      as
      may be required by applicable state and federal securities laws in the opinion
      of legal counsel of the Company), together with any other securities and
      property to which the Holder is entitled upon such conversion under the terms
      of
      this Debenture or such interest. No fractional shares will be issued upon
      conversion of this Debenture; any installment of principal, or any interest
      accrued hereon. If upon any conversion of this Debenture, any installment of
      principal, or any interest accrued hereon, a fraction of a share would otherwise
      result, then in lieu of such fractional share the Company will pay the cash
      value of that fractional share, calculated on the basis of the applicable
      Conversion Price. 

    


    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    5. ADJUSTMENT
      PROVISIONS. The number and character of shares of Conversion Stock issuable
      upon
      conversion of this Debenture, any installment of principal, or any interest
      accrued hereon (or any shares of stock or other securities or property at the
      time receivable or issuable upon conversion of this Debenture, any installment
      of principal, or any interest accrued hereon), and the Conversion Price
      therefor, are subject to adjustment upon occurrence of the following events
      after the date this Debenture is issued: 

    


    5.1 Stock
      Dividends, Splits, Combinations and Reclassifications.
      If the
      Company shall (i) declare a dividend or other distribution payable in securities
      of the Company, (ii) split its outstanding Common Stock into a larger number,
      (iii) combine its outstanding Common Stock into a smaller number, or (iv)
      increase or decrease the number of shares of its Common Stock in a
      reclassification of the Common Stock (including any such reclassification in
      connection with a merger, consolidation or other business combination in which
      the Company is the continuing entity), then the Conversion Price in effect
      immediately prior to such dividend or other distribution, split, combination
      or
      reclassification, as the case may be, shall forthwith be proportionally
      adjusted. Successive adjustments to the Conversion Price shall be made upon
      each
      such dividend or other distribution, split, combination or
      reclassification.

    


    5.2 Adjustment
      for Other Dividends and Distributions.
      In case
      the Company shall make or issue, or shall fix a record date for the
      determination of eligible holders entitled to receive, a dividend or other
      distribution payable in respect to the Conversion Stock that is payable in
      (a)
      securities of the Company (other than issuances with respect to which adjustment
      is made under Section 5.1), or (b) assets (other than cash dividends paid or
      payable solely out of retained earnings), then, and in each such case, the
      Holder, upon conversion of this Debenture, any installment of principal, or
      any
      interest accrued hereon, at any time after the consummation, effective date
      or
      record date of such event, shall receive, in addition to the shares of
      Conversion Stock issuable upon such conversion, the securities or such other
      assets of the Company to which the Holder would have been entitled upon such
      date if the Holder had converted this Debenture, any installment of principal,
      or such interest immediately prior thereto (all subject to further adjustment
      as
      provided in this Debenture). 

    


    5.3 Adjustment
      for Merger, Consolidation Etc. Other Than Acquisition.
      In the
      event of any merger, consolidation or other similar transaction, then the
      Holder, upon the conversion of this Debenture, any installment of principal,
      or
      any interest accrued hereon, at any time after the consummation of such
      transaction, shall be entitled to receive, in lieu of the stock or other
      securities and property receivable upon the conversion of this Debenture or
      such
      interest prior to such consummation, the stock or other securities or property
      to which the Holder would have been entitled upon the consummation of such
      transaction if the Holder had converted this Debenture, any installment of
      principal, or such interest immediately prior thereto, all subject to further
      adjustment as provided in this Debenture, and the successor or purchasing
      corporation or other entity in such transaction (if other than the Company)
      shall duly execute and deliver to the Holder a supplement hereto acknowledging
      such corporation’s or other entity’s obligations under this Debenture; and in
      each such case, the terms of the Debenture shall be applicable to the shares
      of
      stock or other securities or property receivable upon the conversion of this
      Debenture, any installment of principal, or any interest accrued hereon, after
      the consummation of such transaction. 


    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    5.4 Conversion
      of Stock.
      In case
      all of the authorized Common Stock of the Company is converted, pursuant to
      the
      Company’s Certificate of Incorporation, into other securities or property, or
      the Common Stock otherwise ceases to exist, then, in such case, the Holder,
      upon
      conversion of this Debenture, any installment of principal, or any interest
      accrued hereon, at any time after the date on which the Common Stock is so
      converted or ceases to exist (the “Termination
      Date”),
      shall
      receive, in lieu of the number of shares of Common Stock that would have been
      issuable upon such exercise immediately prior to the Termination Date, the
      stock
      and other securities and property to which the Holder would have been entitled
      to receive upon the Termination Date if the Holder had converted this Debenture,
      any installment of principal, or such interest immediately prior to the
      Termination Date (all subject to further adjustment as provided in this
      Debenture). 

    


    5.5 Exception
      to Anti-dilution Adjustments.
      No
      adjustment to the Conversion Price will be made (i) upon the exercise of any
      warrants, options or convertible securities granted, issued and outstanding
      on
      the date of the Closing; (ii) upon the grant or exercise of any stock options
      under any employee benefit plan or otherwise issued to employees or other
      Affiliates of the Company; (iii) upon issuances of securities in an underwritten
      public offering; and (iv) upon issuances of securities as consideration for
      a
      merger, consolidation or purchase of assets in connection with any strategic
      alliance, relationship, partnership or joint venture, or in connection with
      the
      disposition or acquisition of a business, product, line of business or license
      by the Company.

     

    5.6 Notice
      of Adjustments.
      The
      Company shall promptly give written notice to the Holder of each adjustment
      or
      readjustment of the Conversion Price or the number of shares of Common Stock
      or
      other securities issuable upon conversion of this Debenture, or any interest
      accrued hereon. The notice shall describe the adjustment or readjustment and
      show in reasonable detail the facts on which the adjustment or readjustment
      is
      based. 

    


    5.7 No
      Change Necessary.
      The
      form of this Debenture need not be changed because of any adjustment in the
      Conversion Price or in the number of shares of Common Stock issuable upon
      conversion. 

    


    5.8 Reservation
      of Stock.
      If at
      any time the number of shares of Common Stock or other securities issuable
      upon
      conversion of this Debenture, any installment of principal, or any interest
      accrued hereon, shall not be sufficient to effect the conversion of this
      Debenture, any installment of principal, or such interest, the Company will
      take
      such corporate action as may, in the opinion of its counsel, be necessary to
      increase its authorized but unissued shares of Common Stock or other securities
      issuable upon conversion of this Debenture, any installment of principal, or
      any
      interest accrued hereon, as shall be sufficient for such purpose. 

    


    6. NO
      RIGHTS
      OR LIABILITIES AS STOCKHOLDER. This Debenture does not by itself entitle the
      Holder to any voting rights or other rights as a stockholder of the Company.
      In
      the absence of conversion of this Debenture, any installment of principal,
      or
      any interest accrued hereon, no provisions of this Debenture, and no enumeration
      herein of the rights or privileges of the Holder, shall cause the Holder to
      be a
      stockholder of the Company for any purpose. 

    


    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    7. NO
      IMPAIRMENT. The Company will not, by amendment of its Certificate of
      Incorporation or Bylaws, or through reorganization, consolidation, merger,
      dissolution, issue or sale of securities, sale of assets or any other voluntary
      action, willfully avoid or seek to avoid the observance or performance of any
      of
      the terms of this Debenture, but will at all times in good faith assist in
      the
      carrying out of all such terms and in the taking of all such action as may
      be
      necessary or appropriate in order to protect the rights of the Holder under
      this
      Debenture against wrongful impairment. 

    


    8. SUBORDINATION.
      This Debenture is expressly subordinated to Senior Indebtedness of the Company,
      as follows:

     

    8.1. Agreement
      of Subordination.
      Payment
      of the principal and interest on this Debenture is hereby expressly
      subordinated, to the extent and in the manner in this Section hereinafter set
      forth, in right of payment to the prior payment in full of all Senior
      Indebtedness of the Company. 

     

    No
      payment on account of the principal of or interest on this Debenture shall
      be
      made, and the holder hereof shall not be entitled to receive any such payment
      if
      full payment for amounts then due for principal of and interest on Senior
      Indebtedness has not been made (a “Senior
      Indebtedness Default”).
      

     

    In
      the
      event of any insolvency or bankruptcy proceedings, and any receivership,
      liquidation, reorganization or other similar proceedings in connection
      therewith, relative to the Company or to its creditors, as such, or to the
      Company’s property, or in the event of any proceedings for voluntary
      liquidation, dissolution, or other winding up of the Company, whether or not
      involving insolvency or bankruptcy (each of the foregoing an “Insolvency
      Event”),
      the
      holders of Senior Indebtedness shall be entitled to receive payment in full
      of
      all principal, premium, if any, and interest on all Senior Indebtedness (pro
      rata to such holders on the basis of the respective amounts of Senior
      Indebtedness held by such holders) before the Holder of this Debenture is
      entitled to receive any payment on account of principal or interest upon this
      Debenture, and to that end the holders of Senior Indebtedness shall be entitled
      to receive for application to the payment of the Senior Indebtedness any payment
      or distribution of any kind or character, whether in cash, property or
      securities (other than shares of stock of the Company as reorganized or
      readjusted or securities of the Company or any other corporation provided for
      by
      a plan of reorganization or readjustment, distributions on account of which
      or
      the payment of which are subordinated to the payment of all Senior Indebtedness
      which may at the time be outstanding) which may be payable or deliverable in
      any
      such proceedings in respect of this Debenture.

     

    In
      the
      event that this Debenture is declared due and payable before its expressed
      maturity for any reason (a “Debenture
      Acceleration”)
      (under
      circumstances when the provisions of the preceding paragraph shall not be
      applicable), the holders of Senior Indebtedness shall be entitled to receive
      payment in full of all principal, premium, if any, and interest on all Senior
      Indebtedness before the Holder of this Debenture is entitled to receive any
      payment on account of the principal or interest upon this
      Debenture.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    In
      the
      event that, notwithstanding the foregoing, any payment or distribution of assets
      of the Company, whether in cash, property or securities (other than shares
      of
      stock of the Company as reorganized or readjusted or securities of the Company
      or any other corporation provided for by a plan of reorganization or
      readjustment, the payment of which is subordinated to the payment of all Senior
      Indebtedness which may at the time be outstanding), shall be received by the
      Holder of this Debenture at a time which a Senior Indebtedness Default, an
      Insolvency Event or a Debenture Acceleration has occurred and is continuing
      and
      before all Senior Indebtedness is paid in full, or provision made for its
      payment in cash, such payment or distribution shall be held in trust for the
      benefit of, and shall be paid over or delivered to, the holders of such Senior
      Indebtedness or their representative or representatives, or to the trustee
      or
      trustees under any indenture under which any instruments evidencing any of
      such
      Senior Indebtedness may have been issued, for application to the payment of
      all
      Senior Indebtedness remaining unpaid to the extent necessary to pay all such
      Senior Indebtedness after giving effect to any concurrent payment or
      distribution, or provision for payment thereof in cash, to the holders of such
      Senior Indebtedness.

     

    The
      Holder of this Debenture, for itself and its successors and assigns, expressly
      for the benefit of the present and future holders of Senior Indebtedness, by
      purchasing this Debenture, agrees to and shall be bound by the subordination
      provisions of this Section, and agrees to execute and deliver to holders of
      Senior Indebtedness, upon written request, separate subordination agreements
      consistent with the provisions of this Section.

     

    8.2. Effect
      of Subordination.
      No
      right of any present or future holder of any Senior Indebtedness to enforce
      subordination as herein provided shall at any time in any way be prejudiced
      or
      impaired by any act or failure to act on the part of the Company or by any
      act
      or failure to act, in good faith, by any such holder, or by the noncompliance
      by
      the Company with the terms, provisions and covenants of this Debenture
      regardless of any knowledge thereof which such holder may have or otherwise
      be
      charged with. Nothing contained in this Section or elsewhere in this Debenture
      is intended to or shall impair, as between the Company, its creditors other
      than
      the holders of Senior Indebtedness, and the Holder of this Debenture, the
      obligation of the Company, which is absolute and unconditional, to pay to the
      Holder of this Debenture the principal of and the interest on this Debenture
      in
      accordance with its terms, or is intended to or shall affect the relative rights
      of the Holders of this Debenture and the creditors of the Company other than
      the
      holders of Senior Indebtedness, nor shall anything herein or therein prevent
      the
      Holder of this Debenture from exercising all remedies otherwise permitted by
      applicable law upon default under this Debenture, subject to the rights, if
      any,
      under this Section of the holders of Senior Indebtedness, in respect of cash,
      property or securities of the Company received upon the exercise of any such
      remedy.

     

    8.3. Subrogation.
      Subject
      to the payment in full of all Senior Indebtedness, the rights of the Holder
      of
      this Debenture shall be subrogated to the rights of the holders of Senior
      Indebtedness to receive payments or distributions of cash, property, or
      securities of the Company applicable to the Senior Indebtedness until the
      principal amount of (and premium, if any) and interest on this Debenture shall
      be paid in full; and, for the purposes of such subrogation, no payments or
      distributions to the holders of the Senior Indebtedness of any cash, property
      or
      securities to which the Holder of this Debenture would be entitled except for
      the provisions of this Section, and no payment over pursuant to the provisions
      of this Section to or for the benefit of the holders of Senior Indebtedness
      by
      the Holder of this Debenture, shall, as between the Company, its creditors
      other
      than holders of Senior Indebtedness, and the Holder of this Debenture be deemed
      to be a payment by the Company to or on account of the Senior Indebtedness.
      It
      is understood that the provisions of this Section are and are solely for the
      purpose of defining the relative rights of the Holder of this Debenture on
      the
      one hand, and the holders of the Senior Indebtedness, on the other.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    8.4. Reliance
      of Subsequent Holders of Senior Indebtedness.
      Each
      holder of Senior Indebtedness whether outstanding at the date of this Debenture
      or incurred after the date hereof, shall be deemed to have acquired such Senior
      Indebtedness in reliance upon the subordination provisions contained
      herein.

     

    9. REDEMPTION.
      This Debenture may be redeemed, in whole but not in part, upon not less than
      ten
      (10) business days’ notice at any time at the option of the Company, at a price
      equal to 100.0% of the principal amount of this Debenture then outstanding
      plus
      any interest accrued but unpaid to the redemption date. On and after the
      redemption date, interest shall cease to accrue on this Debenture unless the
      Company defaults in payment of the redemption price on the redemption date.
      Notice of redemption will be given by the Company to the Holder as provided
      in
      the Securities Purchase Agreement.

     

    10. WAIVERS.
      The Company and each surety (including all guarantors with respect to this
      Debenture and all persons pledging collateral to secure this Debenture), if
      any,
      hereby waives (i) all demands and presentments for payment, (ii) all notices
      of
      non-payment, intention to accelerate maturity, acceleration of maturity, protest
      and dishonor, and (iii) diligence in taking any action to collect amounts
      hereunder and in the handling of any collateral securing this Debenture.


    


    11. ATTORNEYS’
      FEES. In the event the Holder engages the services of attorneys for the purpose
      of enforcing this Debenture, or any provision thereof, the prevailing party
      shall be entitled to recover its reasonable expenses and costs, including
      attorneys’ fees. 

    


    12.
       DENOMINATIONS,
      TRANSFER AND EXCHANGE. This Debenture is in registered form, without coupons.
      A
      Holder shall register the transfer of or exchange of this Debenture in
      accordance with the Securities Purchase Agreement. The Company, as registrar,
      may require a Holder, among other things; to furnish appropriate endorsements
      and transfer documents and to pay certain transfer taxes or similar governmental
      charges payable in connection therewith as required by law and/or as permitted
      by the Securities Purchase Agreement. The registered Holder of this Debenture
      shall be treated as the owner of the Debenture for all purposes.

    


    13. GOVERNING
      LAW. THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS
      OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS
      OR
      CHOICE OF LAWS. 

    


    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    14. HEADINGS.
      The headings and captions used in this Debenture are used for convenience only
      and are not to be considered in construing or interpreting this Debenture.
      

    


    15. NOTICES.
      Unless otherwise provided, any notice required or permitted under this Debenture
      shall be given in writing and shall be deemed effectively given upon personal
      delivery to the party to be notified or upon deposit with a recognized
      international courier, fees prepaid and addressed to the Holder at the last
      address furnished to the Company by the Holder in writing or, in the case of
      the
      Company, at the principal offices of the Company, or at such other address
      as
      any party may designate by giving ten (10) days’ advance written notice to the
      other party. 

    


    16. AMENDMENTS
      AND WAIVERS. Any term of this Debenture may be amended, and the observance
      of
      any term of this Debenture may be waived (either generally or in a particular
      instance and either retroactively or prospectively) only with the written
      consent of the Company and the holder(s) of a majority of the outstanding
      principal amount of the Debentures. Any amendment or waiver affected in
      accordance with this Section shall be binding upon the Holder of this Debenture
      and each future holder of this Debenture. 

    


    17. SEVERABILITY.
      If one or more provisions of this Debenture are held to be unenforceable under
      applicable law, such provision(s) shall be enforced to the maximum extent
      permitted by applicable law, and the balance of the Debenture shall remain
      in
      full force and effect. 

    


    18. USURY
      SAVINGS CLAUSE. The Company and the Holder intend that the loan evidenced by
      this Debenture (the “Loan”)
      shall
      be in strict compliance with applicable usury laws. If at any time any interest
      contracted for, charged or received under this Debenture or otherwise in
      connection with the Loan would be usurious under applicable law, then regardless
      of any provisions of this Debenture or the Securities Purchase Agreement, or
      any
      other document or any action or event (including, without limitation, prepayment
      of principal hereunder or acceleration of maturity) which may occur with respect
      to this Debenture or the Loan, it is agreed that all sums that otherwise would
      be usurious shall be immediately credited by the Holder as a payment of
      principal hereunder, or if this Debenture has already been paid, immediately
      refunded to the Company. All compensation which constitutes interest under
      applicable law in connection with the Loan shall be amortized, prorated,
      allocated and spread over the full period of time any indebtedness is owing
      by
      the Company under the Loan, to the greatest extent permissible without exceeding
      the maximum rate of interest allowed by applicable law in effect from time
      to
      time during such period.

    


    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the Company has caused this Debenture to be signed in its
      name
      as of the date first above written. 

    
      	 	 	 
	 	ATSI
              COMMUNICATIONS, INC.
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              
                

              

              Name: Arthur
                L Smith

              Title: President
                & CEO

               

              Date: June 1,
                2006

            


    

     

    
      
        
        

      

      
        -12-