Unassociated Document


    
      

        EXHIBIT
          4.9

         

        [FORM
          OF
10%
          CONVERTIBLE REDEEMABLE SUBORDINATED DEBENTURE]

        


        THIS
          DEBENTURE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS DEBENTURE HAVE
          NOT
          BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
          STATE SECURITIES LAWS. THIS DEBENTURE AND THE SHARES ISSUABLE UPON CONVERSION
          OF
          THIS DEBENTURE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
          IN THE
          ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS DEBENTURE UNDER
          SAID
          ACT, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ACORN FACTOR,
          INC. THAT
          SUCH REGISTRATION IS NOT REQUIRED.

        THIS
          DEBT INSTRUMENT HAS, FOR FEDERAL INCOME TAX PURPOSES, BEEN ISSUED WITH
          ORIGINAL
          ISSUE DISCOUNT. HOLDERS MAY CONTACT ACORN FACTOR, INC. 200 ROUTE 17, MAHWAH,
          NEW
          JERSEY, ATTENTION: SECRETARY, TO LEARN THE ISSUE PRICE, THE AMOUNT OF ORIGINAL
          ISSUE DISCOUNT, THE ISSUE DATE AND THE YIELD TO MATURITY OF THIS DEBT INSTRUMENT
          FOR PURPOSES OF THE ORIGINAL ISSUE DISCOUNT RULES.

        


        ACORN
          FACTOR, INC.

         

        
           

        

        
          	 Debenture
                  No. ___ 	 

                  $__________

                


        

         

        10%
          CONVERTIBLE REDEEMABLE SUBORDINATED
          DEBENTURE

        


        ACORN
          FACTOR, INC., a Delaware corporation (“Maker”), the principal office of which is
          located at 200 Route 17, Mahwah, NJ 07430, for value received, hereby promises
          to pay to the order of ____________, or registered assigns (the “Holder”),
          at_________________, the sum of __________________ DOLLARS ($___________)
          (the
“Original Principal Amount”), together with interest on the unpaid principal
          balance of this Debenture from time to time outstanding until such Original
          Principal Amount is paid in full, such interest to be due and payable as
          set
          forth herein. 

        


        1. Principal
          and Interest Payment.
          The
          Original Principal Amount, and any unpaid accrued interest thereon, shall
          be due
          and payable on March 30, 2011 (four years from date of the initial closing
          of
          the offering) (the “Maturity Date”), subject to earlier prepayment or
          conversion, as provided herein. Interest shall be due and payable quarterly
          on
          the last day of each calendar quarter of each year that any portion of
          the
          principal amount of this Debenture remains unpaid, with the first interest
          payment being due and payable on June 30, 2007, and the final installment
          being
          due and payable on the Maturity Date. Payment for all amounts due under
          this
          Debenture shall be made by mail to the registered address of the Holder
          of
          record of the Debenture on the 15th day of the final month of such calendar
          quarter. Each payment by Maker pursuant to this Debenture shall be made
          without
          set-off or counterclaim and shall be made in lawful currency of the United
          States of America and in immediately available funds.

        


        2. Subscription
          Agreement.
          This
          Debenture is one of an issue of Maker's 10% Convertible Redeemable Subordinated
          Debentures in the aggregate principal amount of up to $6,900,000 (the
“Debentures”) issued in a private placement (the “Placement”) pursuant to that
          certain Subscription Agreement entered into between the Maker and Holder
          (the
“Subscription Agreement”), a copy of which agreement is available for inspection
          at Maker’s principal office and the Private Placement Offering Memorandum dated
          as of March 8, 2007. Notwithstanding any provision to the contrary contained
          herein, this Debenture is subject and entitled to those terms, conditions,
          covenants and agreements contained in the Subscription Agreement that are
          expressly applicable to the Debentures. Any transferee of this Debenture,
          by its
          acceptance hereof, assumes the obligations of the original Holder in the
          Subscription Agreement with respect to the conditions and procedures for
          transfer of this Debenture. 

         

         

        
          
             

          

          
             

            
              

            

          

          
             

          

        

        
 

        3. Rights
          of Holder
          The
          following is a statement of the rights of the Holder of this Debenture
          and the
          conditions to which this Debenture is subject, and to which the Holder
          hereof,
          by the acceptance of this Debenture, agrees:

        


        (a) Interest.
          Maker
          shall pay simple interest at the rate of ten percent (10%) per annum on
          the
          principal amount of this Debenture from time to time outstanding; provided,
          however, that in the event that Maker fails to redeem at least 50% of the
          Original Principal Amount of this Debenture, by March 30, 2008 (the “First
          Anniversary Date”) the interest rate shall be increased to a rate of 12% per
          annum commencing from the First Anniversary Date until the date the entire
          Original Principal Amount, and all interest accrued thereon, is repaid.
          Interest
          shall be based upon a 360-day year.

        


        (b) Redemption/Prepayment.
          The
          Original Principal Amount may be prepaid, at par, in whole or in part,
          together
          with any accrued and unpaid interest on the portion to be redeemed, at
          any time
          upon 20 business days’ prior written notice to the Holder (a “Redemption
          Notice”) which Redemption Notice shall state the date of payment, which date
          shall be a business day (the “Redemption Date”), and the principal amount of the
          Debenture to be redeemed (the “Redemption Amount”), and provided:

        


        i. A
          registration statement has been filed by Maker pursuant to the Subscription
          Agreement, providing for the resale, under the Securities Act of 1933,
          as
          amended, by Holder of all of the shares of Maker’s Common Stock, par value $.01
          per share (the “Common Stock”), issuable upon conversion of this Debenture in
          accordance with Section 3(e) herein, such registration statement has been
          declared effective by the Securities and Exchange Commission (“SEC”) and is in
          effect as of the date of the Redemption Notice and as of the Redemption
          Date;

        


        ii. Subject
          to Section 3(c)(1), Holder may convert the outstanding principal amount
          of this
          Debenture at any time up to 5:00 p.m. New York time on the Redemption Date;
          

        


        iii. Maker
          shall deliver the Redemption Notice to Holder’s address by overnight courier or
          other similar means which in the ordinary course would be delivered to
          holder
          not more than three (3) business days after its dispatch;

        


        iv. Prior
          to
          sending the Redemption Notice Maker shall have the funds available to make
          the
          corresponding payment;

        


        v. Payment
          of the Redemption Amount shall be made within five (5) business days of
          the
          Redemption Date and if not made within such five (5) day period, Holder
          shall be
          entitled to additional interest at the rate of 1.0% of the Redemption Amount
          for
          each additional five (50 day period that the redemption payment is not
          made;


        


        vi. The
          Redemption Notice shall be irrevocable by Maker and any redemption hereunder
          shall be made on a pro
          rata
          basis
          among all Holders of the Debentures then outstanding in accordance with
          each
          Holder’s percentage ownership of the principal amount of all the
          Debentures.

        


        (c) Conversion
          of Principal Amount of Debenture.

        


        (1) Optional
          Conversion.
          From
          the date of issuance of this Debenture to, and including, the First Anniversary
          Date, the Holder shall have the right, at its option, to convert into shares
          of
          Common Stock at a conversion price equal to $3.80 per share, subject to
          adjustment as provided herein (the “Conversion
          Price”)
          up to
          the lesser of (i) 50% of the Original Principal Amount on the date of original
          issuance of this Debenture or (ii) the principal amount of this Debenture
          then
          outstanding. Following the First Anniversary Date through and including
          the
          Maturity Date, the Holder shall have the right, at its option, to convert
          up to
          the entire principal amount of this Debenture then outstanding into shares
          of
          Common Stock at the Conversion Price. The shares of Common Stock to be
          issued
          upon such conversion in accordance with Section 2(c) hereof are herein
          referred
          to as the “Conversion Shares.”

         

        
          
             

          

          
            -2-

            
              

            

          

          
             

          

        

         

        (2) Adjustment
          of Conversion Price.
          

        


        (a)
          In
          case Maker shall hereafter (i) declare a dividend or make a distribution
          on its
          outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide
          or
          reclassify its outstanding shares of Common Stock into a greater number
          of
          shares, or (iii) combine or reclassify its outstanding shares of Common
          Stock
          into a smaller number of shares, the Conversion Price in effect at the
          time of
          such dividend or distribution or of the effective date of such subdivision,
          combination or reclassification shall be adjusted so that it shall equal
          the
          price determined by multiplying the Conversion Price by a fraction, the
          denominator of which shall be the number of shares of Common Stock outstanding
          after giving effect to such action, and the numerator of which shall be
          the
          number of shares of Common Stock outstanding immediately prior to such
          action.
          Such adjustment shall be made successively whenever any event listed above
          shall
          occur.

        


        (b)
          In
          the event that, during the term commencing on the date of issuance of this
          Debenture and ending on the date which is six months from the effective
          date of
          the registration statement required to be filed by the Company, in accordance
          with the Subscription Agreement, Maker issues any shares of its Common
          Stock or
          any security convertible into shares of Common Stock, at a price less than
          the
          then current Conversion Price, then the Conversion Price shall be adjusted
          to
          such lower price; provided, however, that no adjustment will be made with
          respect to (i) Common Stock issuable or issued to employees, consultants,
          officers, directors, or advisors of the Company directly or pursuant to
          a stock
          purchase plan or other compensation arrangement approved by the Board of
          Directors of the Company which are granted at fair market value on the
          date of
          such grant, (ii) capital stock, debt instruments convertible into capital
          stock
          or warrants or options to purchase capital stock issued in connection with
          bona
          fide acquisitions of other operating entities or businesses or equity interests
          therein (including acquisitions of operating divisions or operating groups,
          mergers, corporate partnering agreements, joint ventures or
          similar transactions, the terms of which are approved by the Board of Directors
          of the Company, (iii) Common Stock issuable upon the conversion of the
          Debentures or exercise of warrants issued in the Placement, including any
          placement agent warrants, (iv) Common Stock issued or issuable upon exercise
          or
          conversion of any warrants, options or any other securities exercisable
          or
          exchangeable for, or convertible into shares of Common Stock outstanding
          as of
          March 7, 2007, or (v) Common Stock issued in connection with the sale of
          securities by the Company, in one or more transactions, resulting in aggregate
          gross proceeds of not more than $1,000,000.

         

        (c)
          No
          adjustment in the Conversion Price shall be required under either Section
          2(a)
          or 2(b) if such adjustment is less than one percent (1%) of the then existing
          Conversion Price; provided, however, that any adjustments which by reason
          of
          this Section 2(c) are not required to be made shall be carried forward
          and take
          into account in any subsequent adjustment. 

        


        (3) Common
          Stock Legend.
          The
          Holder acknowledges and agrees that until such time as the Conversion Shares
          have been registered and sold in accordance with an effective registration
          statement, or pursuant to an exemption from registration, certificates
          and other
          instruments representing any of the Conversion Shares shall bear a restrictive
          legend in substantially the following form (and a stop-transfer order may
          be
          placed against transfer of any such securities):

         

        
          
             

          

          
            -3-

            
              

            

          

          
             

          

        

         

        “THE
          SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED
          FOR
          SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
          STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ACORN FACTOR,
          INC.
          THAT SUCH REGISTRATION IS NOT REQUIRED.”

         

        (d) Mechanics
          of Conversion.
          Before
          the Holder shall be entitled to convert this Debenture into Conversion
          Shares in
          accordance with Section 3(c)(1), the Holder shall surrender this Debenture
          at
          the office of Maker, and shall give written notice to Maker at its principal
          corporate office in the form the Conversion Notice, attached hereto as
          Exhibit
          A, together with a schedule in the form of Schedule 1 attached hereto,
          of the
          election to convert the same and shall state therein the name or names
          in which
          the certificate or certificates for the Conversion Shares are to be issued.
          Maker shall, as soon as practicable thereafter, and not more than five
          (5)
          business days after receipt of such election, issue and deliver to the
          Holder a
          certificate or certificates for the number of Conversion Shares to which
          the
          Holder shall be entitled as aforesaid. Such conversion shall be deemed
          to have
          been made immediately prior to the close of business on the date of such
          surrender of the Debenture to be converted, and the Holder shall be treated
          for
          all purposes as the record holder of such shares of Common Stock as of
          such
          date. If delivery of the Conversion Shares is not made within five trading
          (5)
          days from the receipt of the Conversion Notice, the Company shall pay to
          the
          converting Holder 1% of the then-outstanding principal amount of the Debenture
          (without giving effect to the amount submitted for conversion) and an additional
          1% for each five (5) day period thereafter until the Conversion Shares
          are
          delivered to Holder. 

        


        (e) Registration
          Rights.
          The
          Holder shall be entitled to the registration rights included in the Subscription
          Agreement between Maker and the original Holder.

        


        4. Covenants
          of Maker.
          Maker
          covenants and agrees that, so long as this Debenture remains outstanding
          and
          unpaid, in whole or in part:

        


        (a) Maker
          will not sell, transfer or in any other manner alienate or dispose of all
          or
          substantially all of its assets; provided, however, that Maker may effect
          such a
          transaction if the payment of this Debenture is duly provided for from
          such sale
          proceeds, and further provided Maker shall have the right to dispose of
          some or
          all of the shares it holds in its equity affiliate, Comverge, Inc. (“Comverge”),
          in a bona fide, arm’s length transaction for fair market value;

        


        (b) Maker
          will promptly pay and discharge all lawful taxes, assessments and governmental
          charges or levies imposed upon it, its income and profits, or any of its
          property, before the same shall become in default, as well as all lawful
          claims
          for labor, materials and supplies which, if unpaid, might become a lien
          or
          charge upon such properties or any part thereof. Maker shall not be required
          to
          pay and discharge any such tax, assessment, charge, levy or claim so long
          as the
          validity thereof shall be contested in good faith by appropriate proceedings
          and
          Maker shall have set aside on its books adequate reserves with respect
          to any
          such tax, assessment, charge, levy or claim so contested;

        


        (c) Maker
          will do or cause to be done all things necessary to preserve and keep in
          full
          force and effect its corporate existence, rights and franchises and comply
          with
          all laws applicable to Maker as its counsel may advise;

        


        (d) Maker
          will, promptly following the occurrence of an Event of Default or of any
          condition or event which, with the giving of notice or the lapse of time
          or
          both, would constitute an Event of Default, furnish a statement of Maker's
          Chief
          Executive Officer or Chief Financial Officer to Holder setting forth the
          details
          of such Event of Default or condition or event and the action which Maker
          intends to take with respect thereto;

         

        
          
             

          

          
            -4-

            
              

            

          

          
             

          

        

         

        (e) Maker
          will at all times maintain books of account in which all of its financial
          transactions are duly recorded in conformance with generally accepted accounting
          principles; 

        


        (f) Maker,
          until payment in full of all principal and interest due on the Debentures,
          will
          not pay or declare any cash or in kind dividends or other distributions
          with
          respect to its capital stock or any of its assets; provided, however, that
          Maker
          may declare and pay a dividend or distribution to its shareholders of its
          shares
          in Comverge if and only if the Holder of this Debenture is entitled to
          receive
          his pro rata share of the Comverge shares as a dividend or distribution
          on an as
          converted basis, based upon 100% of the outstanding principal amount of
          this
          Debenture as of the record date determined by the Board of Directors of
          the
          Company for such dividend or distribution, regardless of whether the Debenture
          is converted or convertible at such time;

        


        (g) Maker
          covenants and agrees that it will at all times reserve and keep available
          out of
          its authorized capital stock such number of shares of Common Stock of Maker
          as
          may be required for issuance upon conversion of the Debentures;

        


        (h) Maker
          will not, and will not permit any of its Subsidiaries to, make any loan
          to any
          executive officer, or any person who is or becomes a holder of 2% of the
          capital
          stock of Maker, other than for reasonable advances for expenses in the
          ordinary
          course of business;

        


        (i) Maker
          will not purchase or otherwise redeem any Common Stock, except in connection
          with the termination of services of an employee-shareholder or the settlement
          of
          any dispute with a shareholder; provided, however, that in the event shares
          of a
          shareholder owning 2% or more of Maker's capital stock are repurchased
          in
          connection with such shareholder's disassociation from Maker, such repurchase
          price shall not exceed $200,000;

        


        (j) Except
          with the prior written consent of Holders of 75% or more of the principal
          amount
          of the Debentures outstanding as of such date (“the Majority
          Holders”), Maker
          will not create, incur, assume, permit, guarantee or suffer to exist any
          indebtedness or any other obligations for money borrowed, senior in right
          of
          payment or security to the Debentures, except for (i) indebtedness existing
          on
          the date of the Memorandum; (ii) trade payables incurred in the normal
          course of
          business; and (iii) indebtedness or other obligations for money borrowed
          which
          are secured solely by Maker’s shares of Comverge (each of the foregoing
          comprising the “Excluded Indebtedness”);

        


        (k) Except
          with the prior written consent of the Majority Holders, after an Event
          of
          Default, Maker will not pay or prepay any amounts under any outstanding
          indebtedness or other obligations for money borrowed or any indebtedness
          or
          other obligation for money borrowed incurred subsequent to the date hereof,
          whether or not such indebtedness becomes due, past due or accelerated,
          except
          for (i) all of the Debentures on a pro
          rata
          basis;
          and (ii) Excluded Indebtedness;

        


        (l) For
          so
          long as the Debentures are outstanding, the Company shall file with the
          SEC the
          annual reports, quarterly reports and other documents which the Company
          is
          required to file with the SEC pursuant to such Section 13(a) or 15(d) of
          the
          Securities and Exchange Act of 1934, as amended, or any successor provision
          thereto, such documents to be filed with the Commission on or prior to
          their
          respective dates;

         

        
          
             

          

          
            -5-

            
              

            

          

          
             

          

        

         

        (m) The
          proceeds received by Maker from the sale of the Debentures shall be used
          by
          Maker only for the development of its business and related capital expenditures
          and for working capital purposes, as described in the Memorandum.

        


        5. Events
          of Default.
          Any
          of
          the following will constitute events of default under this Debenture (herein
          individually referred to as an “Event
          of Default”):

        


        (i) Default
          in the payment of the principal or interest on this Debenture when due
          and
          payable if such default is not cured by Maker within ten (10) days after
          the due
          date of such payment; or

        


        (ii) The
          institution by Maker of proceedings to be adjudicated as bankrupt or insolvent,
          or the consent by it to institution of bankruptcy or insolvency proceedings
          against it, or the filing by it of a petition or answer or consent seeking
          reorganization or release under the United States Bankruptcy Code, or any
          other
          applicable federal or state law, or the consent by it to the filing of
          any such
          petition or the appointment of a receiver, liquidator, assignee, trustee,
          or
          other similar official of Maker, or of any substantial part of its property,
          or
          the making by it of an assignment for the benefit of creditors, or the
          taking of
          corporate action by Maker in furtherance of any such action; or

        


        (iii) If,
          within sixty (60) days after the commencement of an action against Maker
          (and
          service of process in connection therewith on Maker) seeking any bankruptcy,
          insolvency, reorganization, liquidation, dissolution, or similar relief
          under
          any present or future statute, law, or regulation, such action shall not
          have
          been resolved in favor of Maker or all orders or proceedings thereunder
          affecting the operations or the business of Maker stayed, or if the stay
          of any
          such order or proceeding shall thereafter be set aside, or if, within sixty
          (60)
          days after the appointment without the consent or acquiescence of Maker
          of any
          trustee, receiver, or liquidator of Maker or of all or any substantial
          part of
          the properties of Maker, such appointment shall not have been vacated;
          or

        


        (iv) Maker
          receives written notice of default or defaults in the amount over $50,000
          singly
          or $500,000 in the aggregate on any material debt or obligation (other
          than
          trade payables in the ordinary course of business and taxes discussed in
          Item
          4(b)), including, without limitation, in the event the Company is required
          to
          pay or receives a notice of collection related to any guarantee by the
          Company
          of debt or other obligations of a subsidiary; 

        


        (v) There
          occurs a breach by Maker of any covenant contained in this Debenture or
          any
          provision of the Subscription Agreement, and such breach, if subject to
          cure, is
          not cured within 10 days of the receipt of notice of such breach from
          Holder;

        


        If
          an
          Event of Default, other than under clause (i), (ii) and (iii) above, shall
          occur, the Holder, by written notice to Maker, may declare the principal
          and
          accrued and unpaid interest, then outstanding on this Debenture due and
          payable
          immediately, upon which declaration, such amount shall become due and payable
          on
          the date which is five business days following the date of such notice.
          If an
          Event of Default specified in clause (i), (ii) or (iii) above occurs and
          is
          continuing, then the principal and accrued and unpaid interest, then outstanding
          on this Debenture shall ipso
          facto become
          and be immediately due and payable without any declaration or other act
          on the
          part of Holder. Commencing upon the occurrence of an Event of Default or
          the
          declaration by the Holder of an Event of Default, as the case may be, the
          interest rate shall increase to a rate of fifteen percent (15%) per annum
          based
          upon a 360 day year. Notwithstanding the foregoing, the Holders of seventy-five
          percent (75%) of the then outstanding principal amount of Debentures at
          the time
          of any of the foregoing Events of Default shall have the right to waive
          any such
          Event of Default, except that no such waiver shall be deemed a waiver of
          an
          Event of Default with respect to the non-payment of principal or interest
          on a
          Debenture as to a non-waiving Holder.

         

        
          
             

          

          
            -6-

            
              

            

          

          
             

          

        

         

        6. Subordination. The
          indebtedness evidenced by this Debenture is subordinate in right of payment,
          to
          the extent and manner provided herein, to the prior payment in full of
          all
          indebtedness of the Company existing on the date of the Memorandum (the
“Senior
          Debt”).

        


        In
          the
          event of any insolvency or bankruptcy case or proceeding, or any receivership,
          liquidation, reorganization or other similar case or proceeding in connection
          therewith, relating to the Maker or its assets, or any liquidation, dissolution
          or other winding-up of the Maker, whether voluntary or involuntary, or
          any
          assignment for the benefit of creditors or other marshalling of assets
          or
          liabilities of the Maker, all Senior Debt must be paid in full before any
          payment is made on account of the principal of or interest on this Debenture.
          

         

        7. Assignment. Subject
          to the restrictions on transfer described in Section 8 below, the rights
          and
          obligations of Maker and the Holder of this Debenture shall be binding
          upon and
          benefit the successors, assigns, heirs, personal and legal representatives,
          and
          transferees of the parties. 

        


        8. Transfer
          of this Debenture. With
          respect to any offer, sale or other disposition of this Debenture, the
          Holder
          will give written notice to Maker prior thereto, describing briefly the
          proposed
          manner thereof, together with a written opinion of such Holder's counsel
          in form
          and substance satisfactory to Maker, to the effect that such offer, sale,
          or
          other disposition may be effected without registration or qualification
          (under
          any U.S. federal or applicable state securities law then in effect) and
          that the
          requirements of this Debenture have been met. Upon receiving such written
          notice
          and opinion, Maker, as promptly as practicable, shall notify such Holder
          that
          such Holder may sell or otherwise dispose of this Debenture, all in accordance
          with the terms of the notice delivered to Maker. If a determination has
          been
          made pursuant to this Section 8 that the opinion of counsel for the Holder
          is
          not reasonably satisfactory to Maker, Maker shall so notify the Holder
          promptly
          after such determination has been made. Each Debenture transferred as permitted
          hereby shall bear a legend as to the applicable restrictions on transferability
          in order to ensure compliance with the Securities Act of 1933, as amended
          (the
“Act”),
          unless in the opinion of counsel for Maker such legend is not required
          in order
          to ensure compliance with the Act. Maker may issue stop transfer instructions
          to
          its transfer agent in connection with such restrictions.

        


        9. Registered
          Holder.
          Maker
          may
          consider and treat the person in whose name this Debenture shall be registered
          as the absolute owner thereof for all purposes whatsoever (whether or not
          this
          Debenture shall be overdue) and Maker shall not be affected by any notice
          to the
          contrary. In case of transfer of this Debenture by operation of law, the
          transferee agrees to notify Maker of such transfer and of its address,
          and to
          submit appropriate evidence regarding such transfer so that this Debenture
          may
          be registered in the name of the transferee. This Debenture is transferable
          only
          on the books of Maker by the Holder hereof, in person or by attorney, on
          the
          surrender hereof, duly endorsed. Communications sent to any registered
          owner
          shall be effective as against all Holders or transferees of the Debenture
          not
          registered at the time of sending the communication.

        


        10. Amendments
          and Waivers.
          The
          provisions of this Debenture, may from time to time be amended, modified
          or
          waived, if such amendment, modification or waiver is in writing and consented
          to
          by Maker and the Majority Holders; provided, however, that no such amendment,
          modification or waiver which would (i) modify this Section 10, (ii) extend
          the
          Maturity Date for more than 90 days, (iii) reduce the principal payable
          or the
          interest rate or (iv) modify Sections 3 or 5 hereunder, shall be made without
          the consent of the Holder of each Debenture so affected. After any waiver
          or
          amendment becomes effective, Maker shall mail to the Holder a copy
          thereof.

         

        
          
             

          

          
            -7-

            
              

            

          

          
             

          

        

         

        11. Accounting
          Treatment of Debenture.
          As
          envisioned by generally accepted accounting principles, Maker will treat,
          account, and report the Debenture as debt and not equity for accounting
          purposes
          and with respect to any returns filed with federal, state, or local tax
          authorities.

         

        12. Tax
          Reporting; Tax Withholding.
          The
          Maker shall make such reports to the Internal Revenue Service on Form 1099
          or
          otherwise as shall be required under the Internal Revenue Code of 1986,
          as
          amended, and shall mail appropriate copies thereof to Holder. The Maker
          shall be
          entitled to withhold from all payments of principal and interest, any amounts
          required to be withheld under the applicable provisions of the United States
          income tax laws or other applicable laws at the time of such payments,
          and
          Holder shall execute and deliver all required documentation in connection
          therewith. 

        


        13. Notices.
          Any
          notice, request, or other communication required or permitted hereunder
          shall be
          in writing and shall be deemed to have been duly given if personally delivered,
          or if mailed by registered or certified mail, postage prepaid, or if delivered
          by nationally recognized overnight delivery service at the respective addresses
          of the parties as set forth herein. Any party hereto may by notice so given
          change its address for future notice hereunder. The address for notices
          and
          communications shall be as follows:

        


        If
          to the
          Company: Acorn
          Factor, Inc.

        200
          Route
          17 

        Mahwah,
          NJ 07430

        Attn:
          John A. Moore, Chief Executive Officer

        


        With
          a
          copy to: Eilenberg
          Krause & Paul LLP

        11
          East
          44th Street, 19th
          Floor

        New
          York,
          NY 10017

        Attn:
          Sheldon Krause

        


        If
          to the
          Holder:  To
          the
          address set forth in the records of the Maker.

        


        14. No
          Stockholder Rights.
          Nothing
          contained in this Debenture shall be construed as conferring upon the Holder
          or
          any other person the right to vote or to consent or to receive notice as
          a
          stockholder in respect of meetings of stockholders for the election of
          directors
          of Maker or any other matters or any rights whatsoever as a stockholder
          of
          Maker; and no dividends shall be payable or accrued in respect of this
          Debenture.

        


        15. Denominations.
          At
          the
          request of the Holder, upon surrender of this Debenture, the Maker shall
          promptly issue new Debentures in the aggregate outstanding principal amount
          hereof, in the form hereof, in such denominations of at least $1,000 as
          the
          Holder shall request, with appropriate notation to reflect any conversions
          or
          redemptions.

        


        16. Replacement
          of Debenture.
          Upon
          receipt of evidence reasonably satisfactory to the Maker of the loss, theft,
          destruction or mutilation of this Debenture and, in the case of any such
          loss,
          theft or destruction, upon delivery of an indemnity agreement reasonably
          satisfactory in form and amount to the Maker, or, in the case of any such
          mutilation, upon surrender and cancellation of this Debenture, the Maker,
          at its
          expense, will execute and deliver, in lieu thereof, a new Debenture of
          like
          tenor, with appropriate notation to reflect any conversions or
          redemptions.

        


        17. Governing
          Law.
          This
          Agreement shall be governed by and construed in accordance with the laws
          of the
          State of New York, excluding that body of law relating to conflict of laws.
          

         

        
          
             

          

          
            -8-

            
              

            

          

          
             

          

        

        
18. Submission
          to Jurisdiction.
          Maker
          and
          Holder (i) agree that any legal suit, action or proceeding arising out
          of or
          relating to this Debenture shall be instituted exclusively in the state
          courts
          located in New York, New York or in the United States District Court for
          the
          Southern District of New York (collectively, the “New York Courts”), (ii) waive
          any objection which Maker and Holder may have now or hereafter based upon
          forum
          non conveniens or
          to the
          venue of any such suit, action or proceeding, and (iii) irrevocably consent
          to
          the jurisdiction of the New York Courts in any such suit, action or proceeding.
          Maker and Holder further agree to accept and acknowledge service of any
          and all
          process which may be served in any such suit, action or proceeding in the
          New
          York Courts and agrees that service of process upon the Maker or Holder,
          as the
          case may be, mailed by certified mail to the Maker's or Holder's address,
          will
          be deemed in every respect effective service of process upon Maker and/or
          Holder, in any suit, action or proceeding. FURTHER, BOTH MAKER AND HOLDER
          HEREBY
          WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE THIS DEBENTURE AND IN CONNECTION
          WITH ANY DEFENSE, COUNTERCLAIM OR CROSS CLAIM ASSERTED IN ANY SUCH
          ACTION.

        


        19. Interest
          Rate.
          If
          any
          interest rate specified herein is held to be impermissible, then the rate
          charged on the indebtedness represented hereby shall be reduced to the
          highest
          rate then permitted by law.

        


        


        [Signature
          Page Follows]

      


     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    


    IN
      WITNESS WHEREOF, Maker has caused this Debenture to be signed in its name by
      a
      duly authorized officer on this _______ day of _________, 2007.

    


    ACORN
      FACTOR, INC.

    


    


    By:      

    Name:
      John A. Moore

    Title:
      President and Chief Executive Officer

     

    
 

    
      
        
          
            Signature
              Page to Acorn Factor, Inc. 10% Convertible Redeemable Subordinated
              Debenture

            


          

           

        

        
           

          
            

          

        

        
           

          
          

        

      

    

    


      EXHIBIT
        A 

      


      CONVERSION
        NOTICE

      For

      ACORN
        FACTOR, INC.

      10%
        CONVERTIBLE REDEEMABLE SUBORDINATED DEBENTURE

      


      (To
        be
        executed by the Holder in order to convert this Debenture)

      


      The
        undersigned hereby elects to convert the principal amount of the Debenture
        indicated below, into shares of Common Stock of Acorn Factor, Inc. as of
        the
        date written below. If shares are to be issued in the name of a Person other
        than undersigned, the undersigned will pay all transfer taxes payable with
        respect thereto and is delivering herewith such certificates and opinions
        as
        reasonably requested by Maker in accordance therewith. No fee will be charged
        to
        the Holder for any conversion, except for such transfer taxes, if any. All
        terms
        used in this notice shall have the meanings set forth in the
        Debenture.

       

       

      


        

      


       

      


      


      


      


       

      
        	 Conversion
                calculations: 	 
	 	 
	 Date
                to effect conversion:	 
	 	 
	 Principal
                amount of Debenture owned prior to conversion:  	 
	 	 
	 Principal
                amount of Debenture to be converted 	 
	 	 
	 Principal
                amount of Debenture remaining after conversion:  	 
	 	 
	 Number
                of shares of Common Stock to be issued:  	 
	 	 
	 Conversion
                Price:  	 


      

       

       

       

      
 

      
        	 Holders
                Signature  	 
	 	 
	 Name  	 
	 	 
	 Address  	 


      

       

       

      


       

       

    

    


    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    


    SCHEDULE
      1

    CONVERSION
      SCHEDULE

    


    Dated:
      _____________

    


    


    10%
      Convertible Redeemable Subordinated Debenture, 

    in
      the aggregate principal amount of $______________ issued by Acorn Factor,
      Inc.

    


    


    This
      Conversion Schedule reflects conversions made under the above referenced
      Promissory Debenture.

    


    


    
      	
              Date
                of Conversion

            	
              Amount
                of Conversion

            	
              Aggregate
                Principal Amount Remaining Subsequent
                to Conversion

            	
              Applicable
                Conversion
                Price