Document:

EXHIBIT
10.6

     

    THIS
SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE
MANNER AND TO THE EXTENT SET FORTH IN THE SENIOR LENDER INTERCREDITOR AGREEMENTS
(AS SUCH TERM IS DEFINED IN THE PURCHASE AGREEMENT) AND EACH HOLDER OF THIS
SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS
OF THE JULY SENIOR LENDER INTERCREDITOR AGREEMENT.

     

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

     

    
      	
              Original
      Issue Date:  July ___, 2009

            	
              $

            	 
      
	
              Original
      Conversion Price (subject to adjustment herein):  $0.24

              Principal
      Amount of this Debenture is comprised of the sum of:

            	 
      
	
              (i)

            	
              Cash
      Subscription Amount of

            	
              $

            	 
      	
              ;
      and

            	 
      
	
              (ii)

            	
              OID
      Amount of:

            	
              $

            	 
      	 
      	 
      

    

    

    ORIGINAL
ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

    DUE
MAY 30, 2011

     

    THIS
ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly
authorized and validly issued Original Issue Discount Secured Convertible
Debentures of Capital Growth Systems, Inc., a Florida corporation, (the
“Company”), having its principal place of business at 200 S. Wacker Drive –
Suite 1650, Chicago, Illinois 60606, designated as its Original Issue Discount
Secured Convertible Debenture due on May 30, 2011 (the “Termination Date) (this
debenture, the “Debenture” and, collectively with the other debentures of such
series maturing on May 30, 2011, the “Debentures”).

     

    FOR VALUE
RECEIVED, the Company promises to pay to _______________________ or its
registered assigns (the “Holder”), or shall have paid pursuant to the terms
hereunder, the principal sum of $_______________ on May 30, 2011 (the “Maturity
Date”) or such earlier date as this Debenture is required or permitted to be
repaid as provided hereunder, and to pay default interest, if any, to the Holder
on the then outstanding and unconverted and unredeemed principal amount of this
Debenture in accordance with the provisions hereof.  This Debenture is
subject to the following additional provisions:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
1.          
   Definitions.

     

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

     

    “Aequitas”
means Aequitas Capital Management, Inc., or any successor thereof.

     

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

     

    “Applicable
Margin” means 14%.

     

    “Applicable
Rate” means the rate of interest to be paid on the Cash Subscription Amount from
and after the date hereof, being a rate per annum equal to the sum of (i) the
Prime Rate, plus (ii) the Applicable Margin, of which the Basic Interest amount
shall be paid in cash, and the amount in excess of the Basic Interest shall be
capitalized, compounded monthly and added to the Cash Subscription Amount
(whereupon from and after such date such additional amounts shall also accrue
interest) (such excess above the Basic Interest component to be paid in cash
being “PIK Interest”)..

     

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

     

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

     

    “Basic
Interest” shall mean the component of the Applicable Rate hereunder comprised of
the Prime Rate plus 9%; this is the component of interest of this Debenture
which is payable monthly, in cash, to the extent permitted under the July Senior
Lender Intercreditor Agreement.

     

    “Beneficial
Ownership Limitation” shall have the meaning set forth in Section
4(c).

     

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

     

    “Buy-In”
shall have the meaning set forth in Section
4(d)(v).

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    “Cash
Subscription Amount” shall have the meaning set forth in Section
2(a).

     

    “Change
of Control Transaction” means the occurrence after the date hereof of any
of:  (a) an acquisition after the date hereof by an individual or
legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 40% of the voting securities of the Company (other than by means of
conversion or exercise of the Debentures and the Securities issued together with
the Debentures); (b) the Company merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Company and, after
giving effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 60% of the aggregate voting power of the
Company or the successor entity of such transaction; (c) the Company sells or
transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less than
60% of the aggregate voting power of the acquiring entity immediately after the
transaction; (d) a replacement at one time or within a three year period of more
than one-half of the members of the Board of Directors which is not approved by
a majority of those individuals who are members of the Board of Directors on the
date hereof (or by those individuals who are serving as members of the Board of
Directors on any date whose nomination to the Board of Directors was approved by
a majority of the members of the Board of Directors who are members on the date
hereof); (e) the employment of Patrick C. Shutt with the Company is terminated
for any reason (other than a voluntary resignation) (a “Termination”), and in
the case of such Termination the Company shall fail to hire a replacement chief
executive officer or chief restructuring officer reasonably acceptable to the
Holders holding 67% or more of the Debentures within sixty (60) days following
such Termination; or (f) the execution by the Company of an agreement to which
the Company  is a party or by which it is bound, providing for any of
the events set forth in clauses (a) through (e) above

     

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

     

    “Conversion”
shall have the meaning ascribed to such term in Section
4.

     

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

     

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

     

    “Conversion
Schedule” means the Conversion Schedule in the form of Schedule 1 attached
hereto.

     

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

     

    “Debentures”
shall mean this Debenture and the other Debentures issued by the Company
pursuant to the form of Securities Purchase Agreement pursuant to which this
form of Debenture has been issued.

     

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

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

     

    “Equity
Conditions” means, during the period in question: (a) the Company shall have
duly honored all conversions and redemptions scheduled to occur or occurring by
virtue of one or more Notices of Conversion of the Holder, if any; (b) the
Company shall have paid all liquidated damages and other amounts owing to the
Holder in respect of this Debenture; (c) (i) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares of Common Stock issuable pursuant to the
Transaction Documents; or (ii) at all times after August 19, 2009 with
respect to the Conversion Shares and six months following the date of this
Debenture with respect to the shares underlying the Warrants, all of the
Conversion Shares issuable pursuant to the Transaction Documents may be resold
pursuant to Rule 144 without volume or manner-of-sale restrictions as determined
by the counsel to the Company pursuant to a written opinion letter to such
effect addressed and acceptable to the Transfer Agent and the Holder; with
shares of Common Stock underlying the Warrants, the Rule 144 condition shall be
deemed met to the extent there is a right to exercise the Warrants pursuant to
the cashless exercise option (irrespective of the method in which such Warrant
shares are acquired); (d) the Common Stock is trading on a Trading Market and
all of the shares issuable pursuant to the Transaction Documents are listed or
quoted for trading on such Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future); (e) following the approval by the
stockholders of the Company of the Authorized Share Issuance, there is a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares issuable pursuant to the
Transaction Documents; (f) there is no existing Event of Default or no existing
event which, with the passage of time or the giving of notice, would constitute
an Event of Default; (g) the issuance of the shares in question (or, in the case
of a Quarterly Redemption, the shares issuable upon conversion in full of the
Quarterly Redemption Amount to the Holder would not violate the limitations set
forth in Section
4(c) herein); (h) there has been no public announcement of a pending or
proposed Fundamental Transaction or Change of Control Transaction that has not
been consummated; and (i) the Holder is not in possession of any information
provided by the Company after the date of initial issuance of the July 2009
Debentures by the Company that constitutes, or may constitute, material
non-public information, unless the Holder has consented to be provided such
information.

     

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

     

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

     

    “Mandatory
Default Amount”  means the sum of: (a) the greater of (i) the
outstanding principal amount of this Debenture, divided by the Conversion Price
on the date the Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due or (B) paid
in full, whichever has a lower Conversion Price, multiplied by the VWAP on the
date the Mandatory Default Amount is either (x) demanded or otherwise due or (y)
paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding
principal amount of this Debenture; plus (b) all other amounts, costs, expenses
and liquidated damages due in respect of this Debenture, including, without
limitation, any accrued and unpaid default interest.

     

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

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    “OID
Amount” shall have the meaning set forth in Section
2(a).

     

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

     

    “Permitted
Indebtedness” means:  (a) the indebtedness evidenced by the
Debentures; (b) the Indebtedness existing on the Original Issue Date and set
forth on Schedule 3.1(aa) attached to the Purchase Agreement, together with all
obligations accruing with respect to the same (and in the case of the Senior
Lender Indebtedness includes any amendments thereto or any refinancings thereof
with a new senior secured lender); (c) lease obligations and purchase money
indebtedness of up to $250,000, in the aggregate, incurred in connection with
the acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets; (d) the Senior Debt or any refinancing thereof; (e)
any debt obligation created by the Company as part of its Vendor Payment Plan as
approved by the Collateral Agent and the Company, including but not limited to
any original issue discount debentures issued by the Company to creditors of the
Company or its subsidiaries (hereinafter referred to as “VPP Debentures”); and
(f) any other obligations of the Company or any of its subsidiaries with respect
to the Vendor Payment Plan adopted by the Company in connection with the
issuance of the Debentures.

     

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

     

    “PIK
Interest” shall have the meaning set forth in the definition of “Applicable
Rate.”

     

    “Prime
Rate” means, at any time, the rate of interest noted in The Wall Street
Journal, Money Rates section, as the “Prime Rate” (currently defined as
the base rate on corporate loans posted by at least 75% of the nation’s thirty
(30) largest banks).  In the event that The Wall Street
Journal quotes more than one rate, or range of rates, as the Prime Rate,
then the Prime Rate shall mean the average of the quoted rates.  In
the event that The
Wall Street Journal ceases to publish a Prime Rate, then the Prime Rate
shall be the average of the quoted prime rates of the three (3) largest U.S.
money center commercial banks, as determined by
Aequitas.  Notwithstanding the foregoing, at no time shall the Prime
Rate be less than five percent (5%) per annum.  The Prime Rate may not
be the lowest or best rate at which the Collateral Agent calculates
interest.  Any change in the Prime Rate shall be effective for
purposes of calculating interest hereunder as of the date of such
change.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

     

    “Quarter”
shall have the meaning set forth in Section 6(a)
hereof.

     

    “Quarterly
Conversion Period” shall have the meaning set forth in Section 6(a)
hereof.

     

    “Quarterly
Conversion Price” shall have the meaning set forth in Section 6(a)
hereof.

     

    “Quarterly
Redemption” means the redemption of this Debenture pursuant to Section 6(a)
hereof.

     

    “Quarterly
Redemption Amount” means, as to a Quarterly Redemption, $[___________],(1)
plus liquidated damages and any other amounts then owing to the
Holder in respect of this Debenture.  The “Aggregate Quarterly
Redemption Amount” hereunder means $____________.(2)

      

    “Quarterly Redemption Date”
means the 45th day (or
next Trading Day if such 45th day is
not a Trading Day) of each Quarter (commencing with February 14, 2010) during
the term of this Debenture and terminating upon the full redemption of the
aggregate Quarterly Redemption amount plus liquidated damages and any other
amounts then owing to the Holder in respect of this Debenture.

     

    “Quarterly
Redemption Notice” shall have the meaning set forth in Section 6(a)
hereof.

     

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

     

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

     

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

     

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

     

    “Trading
Day” means a day on which the New York Stock Exchange is open for
business.

     

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

     

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

     

      
        

      

    

    
      
        	
                1

              	
                ((A*B) – A)/7,
      where A = the initial Subscription Amount and B =
  1.75.

              

      

    

    
      
        	
                2

              	
                (A*B) - A.

              

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “VWAP”
means, for any date, the price determined by the first of the following clauses
that applies:  (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time)); (b)  if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock
is not then quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by Pink 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
Holder and reasonably acceptable to the Company.

     

    Section
2.             
Interest and
Prepayment.

     

    (a)           Interest.  The
Company acknowledges and agrees that this Debenture was issued at an original
issue discount, in the amount designated as “OID Amount” on the
first page hereof, with the cash payment funded by the original Holder hereof
being the “Cash
Subscription Amount” shown on the first page hereof.  No
interest shall accrue on the OID Amount prior to the maturity date of this
Debenture or acceleration of the indebtedness evidenced by this
Debenture.  The Cash Subscription Amount of this Debenture shall bear
interest at the Applicable Rate.  Interest on the Cash Subscription
Amount shall be computed on the basis of the actual number of days elapsed over
a year of 360 days.  All accrued interest on the Cash Subscription
Amount (the “Cash
Subscription Amount Interest”) shall be paid monthly in arrears on or
before the 20th day of
each month during the term hereof, in cash as to the Basic Interest component,
with the PIK Interest component to be accrued and added to the principal amount
of this Debenture unless the Company elects to pay PIK Interest with cash and
such payment in cash is permitted under the terms of the July Senior Lender
Intercreditor Agreement.  The OID Amount shall be subject to increase
following the date hereof as provided in Section 6,
below.  Notwithstanding anything to the contrary contained herein, if
while this Debenture is outstanding, for any reason the Company fails to pay any
of the Basic Interest called for hereunder, then the unpaid amount of such
interest shall be added to the principal amount of this Note as additional Cash
Subscription Amount, and in addition, the OID Amount shall be increased by 75%
of the amount of such unpaid Basic Interest; provided however, that failure to
pay Basic Interest shall not be an event of default hereunder if payment is
prohibited due to failure of the Company to meet one or more covenants with
respect to the Senior Debt, or blocked or prohibited pursuant to an
intercreditor agreement to which the Holder and the holder of the Senior Debt is
a party, but shall be an Event of Default to the extent that such payment is
permitted pursuant to the Senior Lender July Intercreditor Agreement and not
blocked by such intercreditor agreement and the Company fails to make payment of
the Basic Interest.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)           Default
Interest.  To the extent permitted by law and without limiting
any other right or remedy of the Holder hereunder, whenever there is an Event of
Default, the rate of interest on the Cash Subscription Amount shall, at the
option of the Holders holding 67% or more of the Debentures, be increased
effective as of the date of delivery of written notice to the Company electing
to increase such interest rate, by adding 4.00% to the interest rate otherwise
in effect hereunder.  In addition, upon the occurrence and during the
continuation of an Event of Default, provided that the Company is permitted to
pay the PIK Interest in cash pursuant to the terms of the July Senior Lender
Intercreditor Agreement, all accrued PIK Interest which has not been previously
added to principal shall thereafter immediately become due and payable to the
extent permitted by the July Senior Lender Intercreditor Agreement and without
any notice, demand or presentment of any kind. Notwithstanding any acceleration
hereunder, should the July Senior Lender Intercreditor Agreement prohibit the
payment of the PIK Interest amount, it shall not accelerate during the period of
such prohibition.  The Company acknowledges that:  (i) such
additional rate is a material inducement to the Holder to fund the Cash
Subscription Amount described herein; (ii) Holder would not have funded the Cash
Subscription Amount in the absence of the agreement of the Company to pay such
additional rate; (iii) such additional rate represents compensation for
increased risk to Holder that the Cash Subscription Amount will not be repaid;
and (iv) such rate is not a penalty and represents a reasonable estimate of (A)
the cost to Holder in allocating resources (both personnel and financial) to the
ongoing review, monitoring, administration and collection of the Cash
Subscription Amount, and (B) compensation to Holder for losses that are
difficult to ascertain.  In the event of termination of this Agreement
by either party hereto, Holder’s entitlement to this charge will continue until
the Cash Subscription Amount is paid in full.

     

    (c)           Prepayment.  Except
as otherwise set forth in this Debenture, the Company may not prepay any portion
of the principal amount of this Debenture without the prior written consent of
the Holder; provided however, should the 67% Majority elect to permit prepayment
of the Debentures on a pro rata basis without penalty, then in such event this
Debenture may be prepaid without penalty, provided prepayment is made in such
manner.  To the extent that Holder allows the Company to prepay any
portion of the principal amount of this Debenture, such prepayment shall reduce
first the OID Amount then outstanding on a dollar-for-dollar basis and, once the
OID Amount has been repaid in full, then shall reduce the Cash Subscription
Amount then outstanding in the same manner.

     

    Section
3.              Registration of Transfers
and Exchanges.

     

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

     

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

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
4.              Conversion.

     

    (a)           Voluntary
Conversion.  At any time after the Authorized Share Approval
until this Debenture is no longer outstanding, this Debenture shall be
convertible, in whole or in part, into shares of Common Stock at the option of
the Holder, at any time and from time to time (subject to the conversion
limitations set forth in Section 4(c)
hereof).  The Holder shall effect conversions by delivering to the
Company a Notice of Conversion, the form of which is attached hereto as Annex A
(each, a “Notice of Conversion”), specifying therein the principal amount of
this Debenture to be converted and the date on which such conversion shall be
effected (such date, the “Conversion Date”).  If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the date that
such Notice of Conversion is deemed delivered hereunder.  To effect
conversions hereunder, the Holder shall not be required to physically surrender
this Debenture to the Company unless the exercise is the final exercise of
conversion rights hereunder. Conversions hereunder shall have the effect of
lowering the outstanding principal amount of this Debenture in an amount equal
to the applicable conversion.  The Holder and the Company shall
maintain records showing the principal amount(s) converted and the date of such
conversion(s).  The Company may deliver an objection to any Notice of
Conversion within 2 Business Days of delivery of such Notice of
Conversion.  In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest
error. The Holder, and any assignee by acceptance of this Debenture, acknowledge
and agree that, by reason of the provisions of this paragraph, following
conversion of a portion of this Debenture, the unpaid and unconverted principal
amount of this Debenture may be less than the amount stated on the face
hereof.

     

    (b)           Conversion
Price.  The conversion price in effect on any Conversion Date
shall be equal to $0.24, subject to adjustment herein (the “Conversion
Price”).

     

    (c)           Conversion
Limitations.  The Company shall not effect any conversion of
this Debenture, and a Holder shall not have the right to convert any portion of
this Debenture, to the extent that after giving effect to the conversion set
forth on the applicable Notice of Conversion, the Holder (together with the
Holder’s Affiliates, and any other person or entity acting as a group together
with the Holder or any of the Holder’s Affiliates) would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below).  For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Debenture with respect
to which such determination is being made, but shall exclude the number of
shares of Common Stock which are issuable upon:  (A) conversion of the
remaining, unconverted principal amount of this Debenture beneficially owned by
the Holder or any of its Affiliates; and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Company  subject to a limitation on conversion or exercise analogous
to the limitation contained herein (including, without limitation, any other
Debentures or the Warrants) beneficially owned by the Holder or any of its
Affiliates.  Except as set forth in the preceding sentence, for
purposes of this Section 4(c),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.  To
the extent that the limitation contained in this Section 4(c) applies,
the determination of whether this Debenture is convertible (in relation to other
securities owned by the Holder together with any Affiliates) and of which
principal amount of this Debenture is convertible shall be in the sole
discretion of the Holder, and the submission of a Notice of Conversion shall be
deemed to be the Holder’s determination of whether this Debenture may be
converted (in relation to other securities owned by the Holder together with any
Affiliates) and which principal amount of this Debenture is convertible, in each
case subject to the Beneficial Ownership Limitation. To ensure compliance with
this restriction, the Holder will be deemed to represent to the Company each
time it delivers a Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the Company shall have
no obligation to verify or confirm the accuracy of such
determination.  In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated
thereunder.  For purposes of this Section 4(c), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as stated in the most
recent of the following:  (A) the Company’s most recent periodic or
annual report, as the case may be; (B) a more recent public announcement by the
Company; or (C) a more recent notice by the Company or the Company’s transfer
agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of a Holder, the
Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Debenture, by the Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of this Debenture held by the
Holder.  The Holder, upon not less than 61 days’ prior notice to the
Company, may increase or decrease the Beneficial Ownership Limitation provisions
of this Section
4(c), provided that the Beneficial Ownership Limitation in no event
exceeds 9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock upon
conversion of this Debenture held by the Holder and the Beneficial Ownership
Limitation provisions of this Section 4(c) shall
continue to apply.  Any such increase or decrease will not be
effective until the 61st day after such notice is delivered to the
Company.  The Beneficial Ownership Limitation provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 4(c) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation contained herein
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Debenture.  Notwithstanding anything to the
contrary contained herein, the Beneficial Ownership Limitations with respect to
this Section
4(c) shall not apply to David Lies, Aequitas or their respective
affiliates.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (d)           Mechanics of
Conversion.

     

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

     

    (ii)          Delivery of Certificate Upon
Conversion.  Not later than three Trading Days after each
Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause
to be delivered, to the Holder a certificate or certificates representing the
Conversion Shares which, on or after the earlier of (i) the six month
anniversary of the Original Issue Date or (ii) the Effective Date, shall be free
of restrictive legends and trading restrictions (other than those which may then
be required by the Purchase Agreement) representing the number of Conversion
Shares being acquired upon the conversion of this Debenture.

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (iv)         Obligation Absolute; Partial
Liquidated Damages.  The Company’s obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture in accordance
with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or any
other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the Company to
the Holder in connection with the issuance of such Conversion Shares; provided,
however, that such delivery shall not operate as a waiver by the Company of any
such action the Company may have against the Holder.  In the event the
Holder of this Debenture shall elect to convert any or all of the outstanding
principal amount hereof, the Company may not refuse conversion based on any
claim that the Holder or anyone associated or affiliated with the Holder has
been engaged in any violation of law, agreement or for any other reason, unless
an injunction from a court, on notice to Holder, restraining and or enjoining
conversion of all or part of this Debenture shall have been sought and obtained,
and the Company posts a surety bond for the benefit of the Holder in the amount
of 150% of the outstanding principal amount of this Debenture, which is subject
to the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to the Holder to the extent it obtains judgment.  In the
absence of such injunction, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion.  If the Company
fails for any reason to deliver to the Holder such certificate or certificates
pursuant to Section
4(d)(ii) by the fifth Trading Day after the Conversion Date (the “Share
Delivery Deadline”), the Company shall pay to the Holder, in cash, as liquidated
damages and not as a penalty, for each $1,000 of principal amount being
converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth
(5th) Trading Day after such liquidated damages begin to accrue) for each
Trading Day after such fifth (5th) Trading Day until such certificates are
delivered.  Nothing herein shall limit a Holder’s right to pursue
actual damages or declare an Event of Default pursuant to Section 8 hereof for
the Company’s failure to deliver Conversion Shares within the period specified
herein and the Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.  The exercise of any
such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable
law.  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
Holder is prohibited from receiving, cash payments of liquidated damages
pursuant to this Section 4(d)(iv), at
the option of the Holder upon written notice to the Company, such amounts
otherwise payable in cash pursuant to this Section 4(d)(iv)
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 lesser of
(x) 90% of the average of the 10 consecutive VWAPs immediately prior to the date
of the applicable Share Delivery Deadline, (y) 90% of the average of the 10
consecutive VWAPs immediately prior to the date such shares are actually issued
or (z) the then applicable Conversion Price.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (v)          Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion.  In
addition to any other rights available to the Holder, if the Company fails for
any reason to deliver to the Holder such certificate or certificates by the
Share Delivery Date pursuant to Section 4(d)(ii), and
if after such Share Delivery Date the Holder is required by its brokerage firm
to purchase (in an open market transaction or otherwise), or the Holder’s
brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Conversion Shares which the Holder
was entitled to receive upon the conversion relating to such Share Delivery Date
(a “Buy-In”), then the Company shall:  (A) pay in cash to the Holder
(in addition to any other remedies available to or elected by the Holder) the
amount by which (x) the Holder’s total purchase price (including any brokerage
commissions) for the Common Stock so purchased exceeds (y) the product of (1)
the aggregate number of shares of Common Stock that the Holder was entitled to
receive from the conversion at issue multiplied by (2) the actual sale price at
which the sell order giving rise to such purchase obligation was executed
(including any brokerage commissions); and (B) at the option of the Holder,
either reissue (if surrendered) this Debenture in a principal amount equal to
the principal amount of the attempted conversion or deliver to the Holder the
number of shares of Common Stock that would have been issued if the Company had
timely complied with its delivery requirements under Section
4(d)(ii).  For example, if the Holder purchases Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of this Debenture with respect to which the actual sale
price of the Conversion Shares (including any brokerage commissions) giving rise
to such purchase obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay the Holder
$1,000.  The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and, upon
request of the Company, evidence of the amount of such loss.  Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
conversion of this Debenture as required pursuant to the terms
hereof.

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (vii)        Fractional
Shares.  No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of this Debenture.  As to
any fraction of a share which Holder would otherwise be entitled to purchase
upon such conversion, the Company shall at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Conversion Price or round up to the next whole
share.

     

    (viii)      
Transfer
Taxes.  The issuance of certificates for shares of the Common
Stock on conversion of this Debenture shall be made without charge to the Holder
hereof for any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificates, provided that, the Company shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in
a name other than that of the Holder of this Debenture so converted and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.

     

    Section
5.              Certain
Adjustments.

     

    (a)           Stock Dividends and Stock
Splits.  If the Company, at any time while this Debenture is
outstanding: (i) pays a stock dividend or otherwise makes a distribution or
distributions payable in shares of Common Stock on shares of Common Stock or any
Common Stock Equivalents (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company upon conversion of, or payment of a
redemption amount on, the Debentures), (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, (iii) combines (including by way of
a reverse stock split) outstanding shares of Common Stock into a smaller number
of shares or (iv) issues, in the event of a reclassification of shares of the
Common Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding any treasury shares of the Company)
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such
event.  Any adjustment made pursuant to this Section 5(a) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re classification.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)           Subsequent Equity
Sales.  If, at any time while this Debenture is
outstanding,  the Company or any Subsidiary, as applicable, sells or
grants any option to purchase or sells or grants any right to reprice, or
otherwise disposes of or issues (or announces any sale, grant or any option to
purchase or other disposition), any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock at an effective price per
share that is lower than the then Conversion Price (such lower price, the “Base
Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if
the holder of the Common Stock or Common Stock Equivalents so issued shall at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price.  Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued.  Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in
respect of an Exempt Issuance.  If the Company enters into a Variable
Rate Transaction, despite the prohibition set forth in the Purchase Agreement,
the Company shall be deemed to have issued Common Stock or Common Stock
Equivalents at the lowest possible conversion price at which such securities may
be converted or exercised. The Company shall notify the Holder in writing, no
later than 1 Business Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this Section 5(b),
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“Dilutive Issuance Notice”).  For purposes of clarification, whether
or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon
the occurrence of any Dilutive Issuance, the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of Conversion.

     

    (c)           Subsequent Rights
Offerings.  If the Company, at any time while the Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share that is lower than the VWAP on the record date
referenced below, then the Conversion Price shall be multiplied by a fraction of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered (assuming delivery to the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP.  Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (e)           Fundamental
Transaction.  If, at any time while this Debenture is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one transaction or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (iv) the Company effects any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then, upon any subsequent
conversion of this Debenture, the Holder shall have the right to receive, for
each Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction, the same
kind and amount of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of 1 share of
Common Stock (the “Alternate Consideration”).  For purposes of any
such conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of 1 share of Common Stock
in such Fundamental Transaction, and the Company shall apportion the Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any conversion of this Debenture following such Fundamental
Transaction.  To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new debenture consistent with the
foregoing provisions and evidencing the Holder’s right to convert such debenture
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 5(e) and
insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.  Notwithstanding anything to the contrary, in the event
of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule
13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a
Fundamental Transaction involving a person or entity not traded on a national
securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market,
or the Nasdaq Capital Market, the Company or any successor entity shall pay at
the Holder’s option, exercisable at any time concurrently with or within 30 days
after the consummation of the Fundamental Transaction, an amount of cash equal
to the value of this Warrant as determined in accordance with the Black Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A)
a price per share of Common Stock equal to the VWAP of the Common Stock for the
Trading Day immediately preceding the date of consummation of the
applicable  Fundamental Transaction, (B) a risk-free interest rate
corresponding to the U.S. Treasury rate for a 30 day period immediately prior to
the consummation of the applicable Fundamental Transaction, (C) an expected
volatility equal to the 100 day volatility obtained from the “HVT” function on
Bloomberg L.P. determined as of the Trading Day immediately following the public
announcement of the applicable Fundamental Transaction and (D) a remaining
option time equal to the time between the date of the public announcement of
such transaction and the Termination Date.

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (g)           Notice to the
Holder.

     

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

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
6.              Quarterly
Redemption.

     

    (a)           Quarterly
Redemption.  On each Quarterly Redemption Date except during
the period where there is an outstanding Event of Default, or where payment of
the Quarterly Redemption Amount is prohibited by the terms of the July Senior
Lender Intercreditor Agreement, the Company shall redeem the Quarterly
Redemption Amount (the “Quarterly Redemption”). The Quarterly Redemption Amount
payable on each Quarterly Redemption Date shall be paid in cash no later than 45
days following the end of each consecutive three month period during the term
hereof commencing with the 3 months ended December 31, 2009, and continuing with
respect to each 3 month period thereafter during the term of this Debenture
(each such period being a “Quarter”); provided, however, as to any Quarterly
Redemption and upon 15 Trading Days’ prior written irrevocable notice (the
“Quarterly Redemption Notice”), in lieu of a cash redemption payment the Company
may elect to pay all or part of a Quarterly Redemption Amount in Conversion
Shares based on a conversion price equal to the lesser of (i) the then
Conversion Price and (ii) 90% of the average of the VWAPs for the 10 consecutive
Trading Days ending on the Trading Day that is immediately prior to the
applicable Quarterly Redemption Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock during such 10 Trading Day period) (the price calculated during the
10 Trading Day period immediately prior to the Quarterly Redemption Date, the
“Quarterly Conversion Price” and such 10 Trading Day period, the “Quarterly
Conversion Period”); provided, further, that the Company may not pay the
Quarterly Redemption Amount in Conversion Shares unless (y) from the date the
Holder receives the duly delivered Quarterly Redemption Notice through and until
the date such Quarterly Redemption is paid in full, the Equity Conditions have
been satisfied, unless waived in writing by the Holder, and (z) as to such
Quarterly Redemption, prior to such Quarterly Conversion Period (but not more
than 5 Trading Days prior to the commencement of the Quarterly Conversion
Period), the Company shall have delivered to the Holder’s account with The
Depository Trust Company (or if such account is not so maintained, then to the
address of the Holder) a number of shares of Common Stock to be applied against
such Quarterly Redemption Amount equal to the quotient of (x) the applicable
Quarterly Redemption Amount divided by (y) the lesser of:  (A) the
Conversion Price and (B) 90% of the average of the 10 VWAPs during the period
ending on the 3rd Trading Day immediately prior to the date of the Quarterly
Redemption Notice (the “Pre-Redemption Conversion Shares”).  The
Holder may convert, pursuant to Section 4(a), any
principal amount of this Debenture subject to a Quarterly Redemption at any time
prior to the date that the Quarterly Redemption Amount, plus liquidated damages
and any other amounts then owing to the Holder are due and paid in
full.  The Holder shall have the right to designate how any
conversions effected during the applicable Quarterly Conversion Period until the
date the Quarterly Redemption Amount is paid in full shall be applied (i.e.,
against the principal amount of this Debenture scheduled to be redeemed on such
Quarterly Redemption Date, against future Quarterly Redemption Amounts or
against the principal amount of this Debenture then outstanding that is not
subject to a Quarterly Redemption); provided, if no such written designation is
made in the applicable Notice of Conversion, the Company shall request that the
Holder provide such written designation prior to the applicable Quarterly
Redemption Date; provided, further, that in the event no such written
designation is ever received from the Holder prior to such applicable Quarterly
Redemption Date, any such conversion shall be applied against the principal
amount of this Debenture then outstanding.  The Company covenants and
agrees that it will honor all Notices of Conversion tendered up until such
amounts are paid in full.  The Company’s determination to pay a
Quarterly Redemption in cash, shares of Common Stock or a combination thereof
shall be applied ratably to all of the holders of the then outstanding
Debentures based on their (or their predecessor’s) initial purchases of
Debentures pursuant to the Purchase Agreement.  At any time the
Company delivers a notice to the Holder of its election to pay the Quarterly
Redemption Amount in shares of Common Stock, and, if a Registration Statement is
then effective, the Company shall file a prospectus supplement pursuant to Rule
424 disclosing such election.   If at any time prior to the
Senior Creditor Repayment (as defined in the July Senior Lender Intercreditor
Agreement) the Company is permitted to make cash payments of a Quarterly
Redemption Amount, such permissible cash payments  pursuant to this
Section 6(a)
shall be made ratably to all of the holders of the then outstanding Debentures
and any other debenture holder of the Company not subordinated in right of
payment to the Debentures, and thereafter, ratably to the holders of the Other
Debentures, and notwithstanding anything herein to the contrary, prior to the
Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount
payable in cash as permitted pursuant to Section 2(c)(iii) of the July Senior
Lender Intercreditor Agreement that is due on January 1, 2010, such Quarterly
Redemption payment shall be due and paid on the same date the Company pays the
Senior Lender Purchasers pursuant to Section 2(c)(v) of the Senior Lender Loan
Agreement and (y) with respect to any Quarterly Redemption Amount payable in
cash as permitted pursuant to Section 2(c)(iv) of the July Senior Lender
Intercreditor Agreement, such Quarterly Redemption payment shall be due and paid
on the first day of each month.   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 Holder is prohibited from receiving, cash
payments of a Quarterly Redemption Amount pursuant to this Section 6(a), the
Company shall be required to elect to make such payment in shares of Common
Stock in accordance with the terms hereof.  If the Company does not
meet the Equity Conditions in connection with such Quarterly Redemption Amount
described in the preceding sentence, at the option of the Holder upon written
notice to the Company, the Holder shall either waive such Equity Conditions or
such amounts otherwise payable in cash shall be added to principal as additional
“Cash Subscription Amount,” and in addition, the OID Amount shall be increased
by 75% of such additional Cash Subscription Amount related to the Quarterly
Redemption Amount that had been added to principal for that
month.  Notwithstanding anything to the contrary contained herein, at
any time preceding the Authorized Share Approval, the Company shall be under no
obligation to issue shares of Common Stock with respect to any Quarterly
Redemption to the extent that the issuance of said shares would constitute an
event of default with respect to any outstanding debentures issued by the
Company or corresponding purchase agreement, in which event the scheduled
Quarterly Redemption amount shall be converted to principal as outlined in the
preceding sentence.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b)           Redemption
Procedure.  The payment of a Quarterly Redemption shall be
payable on the Quarterly Redemption Date.  The Holder may elect to
convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to
actual payment in cash for any redemption under this Section 6 by the
delivery of a Notice of Conversion to the Company.

     

    Section
7.              Negative
Covenants.

     

    As long
as any portion of this Debenture remains outstanding, unless the holders of at
least 67% in principal amount of the then outstanding Debentures (“67%
Majority”) shall have otherwise given  written consent, the Company
shall not, and shall not permit any of its subsidiaries (whether or not a
Subsidiary on the Original Issue Date) to, directly or indirectly:

     

    (a)           other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind, including, but
not limited to, a guarantee, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom;

     

    (b)           other
than Permitted Liens, enter into, create, incur, assume or suffer to exist any
Liens of any kind, on or with respect to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or profits
therefrom;

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (d)           repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its Common Stock or Common Stock Equivalents other
than as to (i) the Conversion Shares or Warrant Shares as permitted or required
under the Transaction Documents or under the transaction documents associated
with the Other Debentures (as that term is defined in the Securities Purchase
Agreement to which the form of this Debenture is attached as an exhibit); (ii)
repurchases of Common Stock or Common Stock Equivalents of departing officers
and directors of the Company, provided that such repurchases shall not exceed an
aggregate of $100,000 for all officers and directors during the term of this
Debenture; and (iii) repurchases of Debentures or Other Debentures pursuant to
approval of a 67% Majority.

     

    (e)           other
than the Senior Debt, repay, repurchase or offer to repay, redeem or otherwise
acquire any Indebtedness, other than: (i) the Debentures if on a pro-rata basis,
(ii) the Other Debentures as permitted under their transaction documents; or
(iii) any payables or other obligations with respect to the Vendor Payment Plan
and any amendments thereto as agreed to between the Company and Collateral
Agent, other than regularly scheduled principal and interest payments as such
terms are in effect as of the Original Issue Date, or as otherwise agreed to
between the Company and Collateral Agent,  provided that such payments
shall not be permitted if, at such time, or after giving effect to such payment,
any Event of Default exists or occurs;

     

    (f)           pay
cash dividends or distributions on any equity securities of the
Company;

     

    (g)           enter
into any transaction with any Affiliate of the Company which would be required
to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or

     

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

     

    Section
8.              Events of
Default.

     

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

     

    (i)           any
default in the payment of:  (A) the principal amount of any Debenture;
or (B) default interest, liquidated damages and other amounts owing to a Holder
on any Debenture, as and when the same shall become due and payable (whether on
a Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of default interest or other default under clause
(B) above, is not cured within 5 Trading Days or waived by a 67% Majority of the
Holders;

     

    (ii)           the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (x) below) which failure is not waived by a
67% Majority  of the Holders, or cured, if possible to cure, within
the earlier to occur of:  (A) 7 Trading Days after notice of such
failure sent by the Holder or by any other Holder to the Company; and (B) 10
Trading Days after the Company has become or should have become aware of such
failure;

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (iii)          (A)
a default or event of default (subject to any grace or cure period provided in
the applicable agreement, document or instrument) shall occur under any of the
Transaction Documents and not be cured or waived by a 67% Majority of the
Holders; or (B) there shall be an acceleration of the indebtedness due by the
Company with respect to the Senior Debt or any refinancing thereof;

     

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

     

    (v)          the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w)
of Regulation S-X)  shall be subject to a Bankruptcy
Event;

     

    (vi)         except
as noted below, the Company or any Subsidiary shall default on any of its
obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or factoring arrangement
that:  (a) involves an obligation greater than $150,000, whether such
indebtedness now exists or shall hereafter be created; and (b) results in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable and where such obligation is not
paid off or reinstated for its original term within 10 days following such
acceleration, unless waived by  a 67% Majority of the
Holders;

     

    (vii)        the
Common Stock shall not be eligible for listing or quotation for trading on a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days;

     

    (viii)       the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of 40% of its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);

     

    (ix)          the
Company does not meet the current public information requirements under Rule 144
in respect of the Underlying Shares at any time following August 19,
2009;

     

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

     

    (xi)          any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or other
assets for more than $100,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar days,
unless waived by a 67% Majority of the Holders..

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b)           Remedies Upon Event of
Default.  Subject to the July Senior Lender Intercreditor
Agreement, if any Event of Default occurs, the outstanding principal amount of
this Debenture, plus liquidated damages and other amounts owing in respect
thereof through the date of acceleration, shall become, at the election of
Holders of at least 67% of the Debentures, immediately due and payable in cash
at the Mandatory Default Amount.  Commencing 5 days after the
occurrence of any Event of Default that results in the eventual acceleration of
this Debenture, interest on this Debenture shall accrue at an interest rate
equal to the lesser of 12% per annum or the maximum rate permitted under
applicable law.  Accrued and unpaid default interest shall be paid by
the Company in cash in arrears on the first day of each calendar
month.  Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Debenture to or as directed by the
Company.  In connection with such acceleration described herein, the
Holder need not provide, and the Company hereby waives, any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable
law.  Such acceleration may be rescinded and annulled by Holder at any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment
pursuant to this Section
8(b).  No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.

     

    Section
9.              Miscellaneous.

     

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

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

     

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

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

    (k)           Amendments.  This
Debenture may be modified or amended and the provisions hereof waived with the
written consent of the Company and Holders holding Debentures at least equal to
67% of the aggregate principal amount then outstanding under all
Debentures.

     

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

     

    [SIGNATURE
PAGES FOLLOW]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

    
      
        	 
      	
                CAPITAL
      GROWTH SYSTEMS, INC.

              
	 
      	 
      
	 
      	
                By:

              	 
      
	 
      	 
      	
                 
      Patrick C. Shutt

              
	 
      	 
      	
                 
      Chief Executive Officer

              
	 
      	 
      
	 
      	
                Facsimile:  

              	
                (312)
      673-2422

              
	 
      	 
      	
                (for
      delivery of Notices)EXHIBIT
10.7

     

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

     

    COMMON
STOCK PURCHASE WARRANT

     

    CAPITAL
GROWTH SYSTEMS, INC.

     

    
      
        	
                Warrant
      Shares:

              	____________________ 
      	 
      	
                Issuance
      Date:                                   
      July __,
      2009

              

      

    

    

    THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value
received, _________________________________
(the “Holder”), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after the
Authorized Share Approval date (the “Initial Exercise Date”) and on or prior to
the close of business on the five year anniversary of the date the Authorized
Share Approval is received and effective (the “Termination Date”) but not
thereafter, to subscribe for and purchase from Capital Growth Systems, Inc., a
Florida corporation (the “Company”), up to __________ shares (the
“Warrant Shares”) of Common Stock.  The purchase price of one share of
Common Stock under this Warrant shall be equal to the Exercise Price, as defined
in Section 2(b).

     

    Section
1.              Definitions

     

    Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Securities Purchase Agreement (the “Purchase Agreement”), dated
July __, 2009, among the Company and the purchasers signatory
thereto.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    Section
2.              Exercise

     

    (a)           Exercise of
Warrant.  Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
date the Authorized Share Approval has been received and is effective on or
before the Termination Date by delivery to the Company (or such other office or
agency of the Company as it may designate by notice in writing to the registered
Holder at the address of the Holder appearing on the books of the Company) of a
duly executed facsimile copy of the Notice of Exercise Form annexed hereto; and,
within 3 Trading Days of the date said Notice of Exercise is delivered to the
Company, the Company shall have received  payment of the aggregate
Exercise Price of the shares thereby purchased by wire transfer or cashier’s
check drawn on a United States bank.  Notwithstanding anything herein
to the contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case,
the Holder shall surrender this Warrant to the Company for cancellation within 3
Trading Days of the date the final Notice of Exercise is delivered to the
Company.  Partial exercises of this Warrant resulting in purchases of
a portion of the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased.  The Holder and the Company shall maintain records showing
the number of Warrant Shares purchased and the date of such
purchases.  The Company shall deliver any objection to any Notice of
Exercise Form within 2 Business Days of receipt of such notice.  In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error.  The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder
at any given time may be less than the amount stated on the face
hereof.

     

    (b)           Exercise
Price.  The exercise price per share of the Common Stock under
this Warrant shall be $0.24, subject to adjustment
hereunder (the “Exercise Price”).

     

    (c)           Cashless
Exercise.  If at any time after the earlier of (i) the six
month anniversary of the date of the Purchase Agreement and (ii) the completion
of the then-applicable holding period required by Rule 144, or any successor
provision then in effect, there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the Warrant
Shares by the Holder, then this Warrant may also be exercised at such time by
means of a “cashless exercise” in which the Holder shall be entitled to receive
a certificate for the number of Warrant Shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:

     

    
      
        
          
            
              
                	 	
                        (A)

                      	
                        =

                      	
                        the
      VWAP on the Trading Day immediately preceding the date of such
      election;

                      
	 	 	 	 
	 	
                        (B)

                      	
                        =

                      	
                        the
      Exercise Price of this Warrant, as adjusted; and

                      
	 	 	 	 
	 	
                        (X)

                      	
                        =

                      	
                        the
      number of Warrant Shares issuable upon exercise of this Warrant in
      accordance with the terms of this Warrant by means of a cash exercise
      rather than a cashless
exercise.

                      

              

            

          

        

      

    

    

    Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (d)           Exercise Limitations.
The Company shall not effect any exercise of this Warrant, and a Holder shall
not have the right to exercise any portion of this Warrant until the Authorized
Share Approval Date.  The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any portion of
this Warrant, pursuant to Section 2 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable
Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any
other person or entity acting as a group together with the Holder or any of the
Holder’s Affiliates), would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below).  For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
the Holder and its Affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which such determination
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) exercise of the remaining, nonexercised portion of
this Warrant beneficially owned by the Holder or any of its Affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any
other  Common Stock Equivalents) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its affiliates.  Except as set forth in the
preceding sentence, for purposes of this Section 2(d), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder, it being acknowledged by the
Holder that the Company is not representing to the Holder that such calculation
is in compliance with Section 13(d) of the Exchange Act and the Holder is solely
responsible for any schedules required to be filed in accordance
therewith.  To the extent that the limitation contained in this
Section 2(d) applies, the determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder together with any
Affiliates) and of which portion of this Warrant is exercisable shall be in the
sole discretion of the Holder, and the submission of a Notice of Exercise shall
be deemed to be the Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to the Beneficial Ownership Limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such
determination.  In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated
thereunder.  For purposes of this Section 2(d), in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (A) the Company’s most recent
periodic or annual report, as the case may be, (B) a more recent public
announcement by the Company or (C) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of a Holder, the
Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was
reported.  The “Beneficial Ownership Limitation” shall be 4.99% of the
number of shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock issuable upon exercise of this
Warrant.  The Holder, upon not less than 61 days’ prior notice to the
Company, may increase or decrease the Beneficial Ownership Limitation provisions
of this Section 2(d), provided that the Beneficial Ownership Limitation in no
event exceeds 9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock upon
exercise of this Warrant held by the Holder and the provisions of this Section
2(d) shall continue to apply.  Any such increase or decrease will not
be effective until the 61st day after such notice is delivered to the
Company.  The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 2(d) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this
Warrant.  Notwithstanding anything to the contrary contained herein,
the Beneficial Ownership Limitations with respect to this Section 4(c) shall not
apply to David Lies, Aequitas or their respective affiliates.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    (e)           Mechanics of
Exercise.

     

    (i)           Delivery of Certificates
Upon Exercise.  Certificates for shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by crediting the
account of the Holder’s prime broker with the Depository Trust Company through
its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a
participant in such system and either (A) there is an effective Registration
Statement permitting the resale of the Warrant Shares by the Holder or (B) the
shares are eligible for resale without volume or manner-of-sale limitations
pursuant to Rule 144, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within 3 Trading Days from the
delivery to the Company of the Notice of Exercise Form, surrender of this
Warrant (if required) and payment of the aggregate Exercise Price as set forth
above (the “Warrant Share Delivery Date”).  This Warrant shall be
deemed to have been exercised on the date the Exercise Price is received by the
Company.  The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the Warrant has been exercised by payment to the Company of the Exercise Price
(or by cashless exercise, if permitted) and all taxes required to be paid by the
Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such
shares, have been paid. If the Company fails for any reason to deliver to the
Holder certificates evidencing the Warrant Shares subject to a Notice of
Exercise by the Warrant Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of
Warrant Shares subject to such exercise (based on the VWAP of the Common Stock
on the date of the applicable Notice of Exercise), $10 per Trading Day
(increasing to $20 per Trading Day on the seventh Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such certificates are
delivered.   Notwithstanding anything to the contrary contained
herein, if at any time prior to the Senior Creditor Repayment (as defined in the
Senior Lender Intercreditor Agreement) the Company is prohibited from paying,
and the Holder is prohibited from receiving, cash payments of liquidated damages
pursuant to this Section, at the option of the Holder upon written notice to the
Company, such amounts otherwise payable in cash pursuant to this Section 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 lesser of
(x) 90% of the average of the 5 consecutive VWAPs immediately prior to the date
of the applicable Warrant Share Delivery Date, (y) 90% of the average of the 5
consecutive VWAPs immediately prior to the date such shares are actually issued
or (z) the then applicable Conversion Price.

     

    (ii)           Delivery of New Warrants
Upon Exercise.  If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (iii)           Rescission
Rights.  If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share Delivery Date,
then, the Holder will have the right to rescind such exercise.

     

    (iv)           Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise.  In
addition to any other rights available to the Holder, if the Company fails to
cause the Transfer Agent to transmit to the Holder a certificate or the
certificates representing the Warrant Shares pursuant to an exercise on or
before the Warrant Share Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares which the
Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company
shall (A) pay in cash to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the
number of Warrant Shares that the Company was required to deliver to the Holder
in connection with the exercise at issue times (2) the price at which the sell
order giving rise to such purchase obligation was executed, and (B) at the
option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored or deliver to
the Holder the number of shares of Common Stock that would have been issued had
the Company timely complied with its exercise and delivery obligations
hereunder.  For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of the Company,
evidence of the amount of such loss.  Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.

     

    (v)           No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall, at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Exercise Price or round up to the next whole share.

     

    (vi)           Charges, Taxes and
Expenses.  Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the event certificates for Warrant Shares
are to be issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (vii)           Closing of
Books.  The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

     

    Section
3.             
Certain
Adjustments

     

    (a)           Stock Dividends and
Splits.  If the Company, at any time while this Warrant is
outstanding: (i) pays a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, (iii) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares
or (iv) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event and the number of shares issuable
upon exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged.  Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re
classification.

     

    (b)           Subsequent Equity
Sales.  If the Company or any Subsidiary thereof, as
applicable, at any time while this Warrant is outstanding, shall sell or grant
any option to purchase, or sell or grant any right to reprice, or otherwise
dispose of or issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock, at an effective price
per share less than the then Exercise Price (such lower price, the “Base Share
Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of
the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with such issuance,
be entitled to receive shares of Common Stock at an effective price per share
which is less than the Exercise Price, such issuance shall be deemed to have
occurred for less than the Exercise Price on such date of the Dilutive
Issuance), then, the Exercise Price shall be reduced and only reduced to equal
the Base Share Price and the number of Warrant Shares issuable hereunder shall
be increased such that the aggregate Exercise Price payable hereunder, after
taking into account the decrease in the Exercise Price, shall be equal to the
aggregate Exercise Price prior to such adjustment.  Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are
issued.  Notwithstanding the foregoing, no adjustments shall be made,
paid or issued under this Section 3(b) in respect of an Exempt
Issuance.  The Company shall notify the Holder, in writing, no later
than the Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 3(b), indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price and
other pricing terms (such notice, the “Dilutive Issuance
Notice”).  For purposes of clarification, whether or not the Company
provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the
occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance
the Holder is entitled to receive a number of Warrant Shares based upon the Base
Share Price regardless of whether the Holder accurately refers to the Base Share
Price in the Notice of Exercise.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (c)           Subsequent Rights
Offerings.  If the Company, at any time while the Warrant is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the VWAP at the record date
mentioned below, then, the Exercise Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered (assuming receipt by the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP.  Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.

     

    (d)           Second Tranche
Debentures.  In the event the original Holder of this Warrant
purchased one or more Second Tranche Debentures pursuant to the Securities
Purchase Agreement pursuant to which this Warrrant was issued, and the Company
failed to pay to such original Holder (or its assigns) the cash amount paid for
the Second Tranche Debenture(s) purchased by such Holder by September 30, 2009,
then the Exercise Price for this Warrant shall be reduced to $0.15 per share
effective October 1, 2009.

     

    (e)           Pro Rata
Distributions.  If the Company, at any time while this Warrant
is outstanding, shall distribute to all holders of Common Stock (and not to
Holders of the Warrants) evidences of its indebtedness or assets (including cash
and cash dividends) or rights or warrants to subscribe for or purchase any
security other than the Common Stock (which shall be subject to Section 3(b)),
then in each such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then per share fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith.  In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock.  Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (f)           Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the
Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each “Fundamental Transaction”), then, upon any
subsequent exercise of this Warrant, the Holder shall have the right to receive,
for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, the number
of shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate Consideration”) receivable as a result of such merger,
consolidation or disposition of assets by a holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
event. For purposes of any such exercise, the determination of the Exercise
Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one share
of Common Stock in such Fundamental Transaction, and the Company shall apportion
the Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction.  To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder’s right to exercise such warrant
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 3(e)
and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a
Fundamental Transaction involving a person or entity not traded on a national
securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market,
or the Nasdaq Capital Market, the Company or any successor entity shall pay at
the Holder’s option, exercisable at any time concurrently with or within 30 days
after the consummation of the Fundamental Transaction, an amount of cash equal
to the value of this Warrant as determined in accordance with the Black Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A)
a price per share of Common Stock equal to the VWAP of the Common Stock for the
Trading Day immediately preceding the date of consummation of the
applicable  Fundamental Transaction, (B) a risk-free interest rate
corresponding to the U.S. Treasury rate for a 30 day period immediately prior to
the consummation of the applicable Fundamental Transaction, (C) an expected
volatility equal to the 100 day volatility obtained from the “HVT” function on
Bloomberg L.P. determined as of the Trading Day immediately following the public
announcement of the applicable Fundamental Transaction and (D) a remaining
option time equal to the time between the date of the public announcement of
such transaction and the Termination Date.

     

    (g)           Calculations.  All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (h)           Notice to
Holder.

     

    (i)           Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company enters into a
Variable Rate Transaction, despite the prohibition thereon in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price at which
such securities may be converted or exercised.

     

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

     

    Section
4.              Transfer of
Warrant

     

    (a)           Transferability.  Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
Agreement, this Warrant and all rights hereunder (including, without limitation,
any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees, as applicable, and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled.  The Warrant, if properly
assigned, may be exercised by a new holder for the purchase of Warrant Shares
without having a new Warrant issued.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    (b)           New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney.  Subject to compliance
with Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the original Issuance Date and shall be identical with this Warrant except as to
the number of Warrant Shares issuable pursuant thereto.

     

    (c)           Warrant
Register.  The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to
time.  The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or
any distribution to the Holder, and for all other purposes, absent actual notice
to the contrary.

     

    (d)           Transfer
Restrictions.  If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant, the transfer of this Warrant
shall not be either (i) registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or blue
sky laws or (ii) eligible for resale without volume or manner-of-sale
restrictions pursuant to Rule 144, the Company may require, as a condition of
allowing such transfer, that the Holder or transferee of this Warrant, as the
case may be, comply with the provisions of Section 5.7 of the Purchase
Agreement.

     

    Section
5.              Miscellaneous

     

    (a)           No Rights as Stockholder
Until Exercise.  This Warrant does not entitle the Holder to
any voting rights or other rights as a stockholder of the Company prior to the
exercise hereof as set forth in Section 2(e)(i).

     

    (b)           Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

     

    (c)           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.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (d)           Authorized
Shares.  The Company covenants that after the Authorized Share
Approval is received, at all times during the period the Warrant is outstanding,
it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the
exercise of any purchase rights under this Warrant.  The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this
Warrant.  The Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
the Trading Market upon which the Common Stock may be listed.  The
Company covenants that all Warrant Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant, be duly authorized, validly issued,
fully paid and nonassessable and free from all taxes, liens and charges created
by the Company in respect of the issue thereof (other than taxes in respect of
any transfer occurring contemporaneously with such issue).

     

    Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment.  Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this
Warrant.

     

    Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

     

    (e)           Jurisdiction.  All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Purchase Agreement.

     

    (f)           Restrictions.  The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.

     

    (g)           Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date.  If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    (h)        
  Notices.  Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.

     

    (i)        
   Limitation of
Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

     

    (j)         
  Remedies.  The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law
would be adequate.

     

    (k)         
  Successors
and Assigns.  Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder.  The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by the Holder or holder of Warrant Shares.

     

    (l)           
Amendment.  This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and Holders holding Warrants at least equal to
67% of the Warrant Shares issuable upon exercise of all then outstanding
Warrants, and all Warrant Holders hereby agree to be bound by such amendments or
modifications.

     

    (m)           Severability.  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

     

    (n)           Headings.  The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

     

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

     

    (SIGNATURE
PAGES FOLLOW)

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

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

     

    
      	 
      	
              CAPITAL
      GROWTH SYSTEMS, INC.

            
	 
      	 
      
	 
      	
              By:

            	 
      
	 
      	 
      	
              Patrick
      C. Shutt

            
	 
      	 
      	
              Chief
      Executive Officer

            

    

    
      
         

      

      
        13

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00161-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00161-of-00352.parquet"}]]