Document:

Unassociated Document

    EXHIBIT
10.4

     

    DEBT SUBORDINATION AND
INTERCREDITOR AGREEMENT

     

    This Debt
Subordination and Intercreditor Agreement (as the same may from time to time be
amended, modified or restated, the “Agreement”) is dated
as of July 31, 2009, and is entered into by and among (a) CAPITAL GROWTH
SYSTEMS, INC., a Florida corporation (“Parent”), (b) GLOBAL
CAPACITY GROUP, INC., a Texas corporation (“GCG”),
(c) CENTREPATH, INC., a Delaware corporation (“Centrepath”), (d)
20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20 Inc.”), (e)
20/20 TECHNOLOGIES I, LLC, a Delaware limited liability company (“20/20 LLC”), (f)
NEXVU TECHNOLOGIES, LLC, a Delaware limited liability company (“Nexvu”), (g) FNS
2007, INC., a Delaware corporation (“FNS”),
(h) GLOBAL CAPACITY DIRECT USA, LLC, a Delaware limited liability company
(“GCD”), (i) MAGENTA NETLOGIC LIMITED, a company incorporated in England
and Wales (“Magenta”), (j)
CAPITAL GROWTH ACQUISITION, INC., a Delaware corporation (“Acquisition”; Parent,
GCG, Centrepath, 20/20 Inc., 20/20 LLC, Nexvu, FNS, GCD, Magenta and Acquisition
are referred to herein individually as a “Debtor” and
collectively as the “Debtors”), (k)
AEQUITAS CAPITAL MANAGEMENT, INC., an Oregon corporation, in its capacity as
agent for the Debenture Purchasers under and as defined in the Subordinated
Debenture Agreement described below (in such capacity, the “Junior Agent”), (l)
the Purchasers under and as defined in the Subordinated Debenture Agreement
(Junior Agent and such Purchasers are sometimes referred to herein as a “Junior Creditor” and
collectively as the “Junior Creditors”),
(m) each Lender under and as defined in the Senior Loan Agreement described
below (each a “Senior
Lender”), and (n) ACF CGS, L.L.C., a Delaware limited liability company,
as administrative agent for each of the Senior Lenders under the Senior Loan
Agreement (together with each such Senior Lender, collectively, the “Senior
Creditor”).

     

    WITNESSETH:

     

    WHEREAS,
the Junior Creditors will provide financing to Parent pursuant to that certain
Securities Purchase Agreement dated as of July 31, 2009 (as amended, restated or
otherwise modified from time to time, the “Subordinated Debenture
Agreement”), as further evidenced by those certain Original Issue
Discount Secured Convertible Debentures due, subject to the terms therein,
November 30, 2011, made by Parent payable to such Junior Creditors in the
aggregate original principal amount of up to $4,125,000 (each debenture issued
under the Subordinated Debenture Agreement, as such debenture may be amended,
restated or otherwise modified from time to time, is hereafter referred to as a
“Subordinated
Debenture”).

     

    WHEREAS,
each Debtor other than Parent has guaranteed the obligations of Parent with
respect to the Subordinated Debentures pursuant to that certain Subsidiary
Guaranty dated on or about the date hereof, by such Debtors in favor of the
Junior Creditors (the “Subordinated Debenture
Guarantee”), and the obligations of Debtors to Junior Creditors are
secured by substantially all assets of Debtors pursuant to that certain Security
Agreement dated on or about the date hereof, by Debtors in favor of the Junior
Creditors (the “Subordinated Debenture
Security Agreement”). All current and future documents relating to the
Junior Debt (as hereinafter defined), including without limitation the
Subordinated Debentures, the Subordinated Debenture Agreement, the Subordinated
Debenture Guarantee, the Subordinated Debenture Security Agreement and any other
guaranty, security agreement, pledge agreement, control agreement, mortgage,
deed of trust or other instrument, document or agreement executed and/or
delivered in connection with any of the foregoing (including any share of stock
or other security into which any Subordinated Debenture has been or may be
converted), as the same may be amended, modified or restated, are referred to
herein as the “Subordinated Debenture
Documents”.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    WHEREAS,
Senior Creditor and Debtors are parties to that certain Loan and Security
Agreement dated on or about the date hereof (as amended, restated, or otherwise
modified from time to time, and including any Refinancing thereof, the “Senior Loan
Agreement”), pursuant to which Senior Creditor has made a loan to the
Debtors in the principal amount of $8,500,000. All current and future documents
relating to the Senior Debt, as hereafter defined, including without limitation
the Senior Loan Agreement and any guaranty, security agreement, pledge
agreement, control agreement, mortgage, or deed of trust, and any documents
evidencing or relating to any Additional Senior Loans, as the same may be
amended, modified or restated, are herein and now referred to collectively and
individually as the “Senior Loan
Documents”.

     

    WHEREAS,
the Senior Debt is secured by the Collateral, as hereafter defined.

     

    WHEREAS,
in order to induce Senior Creditor to enter into an amendment of the Senior Loan
Agreement and to provide financial accommodations to Debtors thereunder, Junior
Creditors and Debtors have agreed to enter into this Agreement in order to
subordinate the Junior Debt to the Senior Debt and to subordinate the security
interest and other rights of Junior Creditors in the Collateral to the security
interest and other rights of Senior Creditor with respect thereto.

     

    NOW,
THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged, Junior Creditors and Debtors hereby agree with Senior Creditor as
follows:

     

    1.           Certain
Defined Terms. In
addition to the terms defined above and elsewhere in this Agreement, the
following terms used in this Agreement will have the following meanings,
applicable both to the singular and the plural forms of the terms
defined:

     

    “Bankruptcy
Code”: Title 11 of the United States Code (11 U.S.C. § 101 et seq.).

     

    “Bankruptcy
Event”: (a) any insolvency or bankruptcy case or proceeding (including
any case under the Bankruptcy Code), or any receivership, custodianship,
liquidation, reorganization, administration, administrative receivership,
arrangement or other similar case or proceeding, relative to any Debtor, or to
the assets of any Debtor, (b) any liquidation, dissolution, reorganization or
winding up of any Debtor, whether voluntary or involuntary and whether or not
involving solvency or bankruptcy, (c) any assignment for the benefit of
creditors or any other marshalling of assets and liabilities of any Debtor, (d)
any sale, transfer or other disposition of all or substantially all of the
assets of any Debtor in connection with any of the foregoing, or (e) any
application, notice, resolution or order made, passed or given for or in
connection with any of the foregoing or any event analogous to any of the
foregoing.

     

    
      
        
        

      

      
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    “Blockage
Notice”: a written notice from Senior Creditor to Junior Agent that a
Non-Payment Default or Payment Default has occurred and is continuing. Any
Blockage Notice shall specify the nature of the applicable Payment Default(s)
and Non-Payment Default(s).

     

    “Blockage
Period”: any period commencing on the date a Blockage Notice is given and
ending (a) with respect to a Blockage Period in connection with a Payment
Default, on the earliest to occur of (i) the date when such Payment Default has
been cured or waived in writing by Senior Creditor, or (ii) 180 days from the
date a Blockage Notice is given if prior to such date the Senior Creditor has
not formally accelerated the Senior Debt and undertaken good faith proceedings
to effect such acceleration; (b) with respect to a Class 1 Non-Payment Default,
on the earliest to occur of (i) the date when such Class-1 Non-Payment Default
has been cured or waived in writing by Senior Creditor, or (ii) 180 days from
the date a Blockage Notice is given if prior to such date the Senior Creditor
has not formally accelerated the Senior Debt and undertaken good faith
proceedings to effect such acceleration; and (c) with respect to a Class 2
Non-Payment Default, on the earliest to occur of (i) the date when such Class-2
Non-Payment Default has been cured or waived in writing by Senior Creditor, or
(ii) 60 days from the date a Blockage Notice is given if prior to such date the
Senior Creditor has not formally accelerated the Senior Debt and undertaken good
faith proceedings to effect such acceleration.

     

    “Class 1
Non-Payment Default”: each of the Non-Payment Defaults under the Senior
Loan Documents described on Schedule 1 attached hereto.

     

    “Class 2
Non-Payment Default”: each of the Non-Payment Defaults under the Senior
Loan Documents described on Schedule 2 attached hereto.

     

    “Collateral”:
any and all of the assets now owned or hereafter acquired by any Debtor,
together with all proceeds, products, accessions and additions thereto from time
to time, including without limitation any insurance proceeds.

     

    “Debtor”:
has the meaning ascribed to such term in the introductory paragraph of this
Agreement and shall include any successor assign or assign of any Debtor,
including, without limitation, a receiver, trustee or
debtor-in-possession.

     

    “Default”:
any “Default”, as such term is defined in the Senior Loan Agreement, together
with any other default, event of default or other breach of any Senior Loan
Document (after giving effect to any applicable notice and cure periods) that
entitles Senior Creditor to accelerate the Senior Debt or exercise any other
right or remedy against any Debtor.

     

    
      
        
        

      

      
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    “Enforcement
Action” shall mean (a) the commencement of legal proceedings by Senior
Creditor against the Debtors for the collection of all or substantially all of
the indebtedness owed pursuant to the Senior Loan Agreement, whether pursuant to
institution of a lawsuit or the taking of actions to foreclose on substantially
all of the collateral securing Senior Debt, including, without limitation, the
institution of any enforcement or foreclosure proceedings, the noticing of any
public or private sale or other disposition pursuant to the United States
Bankruptcy Code, or any diligently pursued attempt to vacate or obtain relief
from a stay or other injunction restricting any other action described in this
definition, (b) the exercise of any right or remedy in connection with a Default
as provided under the Senior Loan Documents (including delivery of any notice to
seek to obtain payment directly from any account debtor of any Debtor or the
taking of any action or the exercise of any right or remedy in respect of the
setoff or recoupment against the Collateral or proceeds of Collateral), under
applicable law, at equity, in a Bankruptcy Event or otherwise, (c) the sale,
assignment, transfer, lease, or other disposition of all or substantially all of
the Collateral, by private or public sale or any other means as permitted under
the Senior Loan Documents, (d) the engagement or retention of sales brokers,
marketing agents, investment bankers, accountants, appraisers, auctioneers or
other third parties for the purpose of marketing or disposing of all or
substantially all of the Collateral, provided that any such engagement or
retention shall require the applicable party to obtain letters of intent with
regard to a transaction within a commercially reasonable period of time and in
any event within sixty (60) days following the date of the engagement of such
person, or (e) the commencement of, or the joinder with any creditor in
commencing, any Bankruptcy Event against any Debtor or any assets of any Debtor,
including the appointment of a receiver, interim receiver, trustee or similar
official over any Debtor of any assets of any Debtor.

     

    “Junior
Agent”: has the meaning set forth in the introductory paragraph of this
Agreement.

     

    “Junior
Creditor”: has the meaning set forth in the introductory paragraph of
this Agreement.

     

    “Junior
Debt”: all indebtedness, fees, expenses, obligations and liabilities of
each Debtor to any Junior Creditor, whether now existing or hereafter incurred
or created, under or with respect to the Subordinated Debenture Documents, in
each case, whether such amounts are due or not due, direct or indirect, absolute
or contingent.

     

    “Lien”:
any interest in property securing an obligation owed to, or a claim by, a Person
other than the owner of such property, whether such interest is based on the
common law, equity, statute or contract, and including a security interest,
charge, claim or lien arising from a mortgage, deed of trust, encumbrance,
pledge, hypothecation, assignment, deposit arrangement, agreement, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes.

     

    “Non-Payment
Default”: any Default (other than a Payment Default), or any other event
(other than a Payment Default) the occurrence of which (after giving effect to
any applicable notice and cure periods) entitles the Senior Creditor to
accelerate the maturity of any of the Senior Debt, and including all Class 1
Non-Payment Defaults and Class 2 Non-Payment Defaults.

     

    “Payment
Default”: any default in the payment of any Senior Debt (whether upon
maturity, mandatory prepayment, acceleration or otherwise) beyond any applicable
grace period with respect thereto.

     

    “Person”:
any individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

     

    
      
        
        

      

      
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    “Refinancing”:
any replacement or refinancing of the Senior Debt, provided that such
replacement or refinancing indebtedness does not (i) increase the principal
amount of the Senior Debt beyond the limits described in clause (a) of the
definition of “Senior Debt”, (ii) extend the stated maturity date of some or all
of the Senior Debt beyond the maturity date of the Senior Debt as of the date of
this Agreement, or (iii) add any additional events of default or financial
covenants such that such refinancing indebtedness is materially more restrictive
to the Debtors than the Senior Debt as of the date of this
Agreement.

     

    “Senior
Creditor”: means the Senior Creditor referred to in the introductory
paragraph of this Agreement and any other holder of Senior Debt from time to
time.

     

    “Senior
Creditor Repayment”: the circumstance in which (a) subject to Section
12(a), the Senior Debt has been paid in full in cash, and (b) the commitment of
Senior Creditor to make loans under the Senior Loan Agreement has been
terminated.

     

    “Senior
Debt”: all liabilities of any Debtor to Senior Creditor from time to time
outstanding pursuant to or in connection with the Senior Loan Documents
(including, without limitation, all principal, interest, fees, reimbursement
obligations with respect to letters of credit, indemnities, costs and expenses)
up to an aggregate amount not to exceed the sum of (a) up to $8,500,000 of loans
at any time outstanding pursuant to the Senior Loan Agreement plus, subject to
Senior Creditor’s compliance with Section 13(a) of this Agreement, up to an
additional $2,000,000 of loans under the Senior Loan Agreement (“Additional Senior
Loans”); plus (b) all interest arising under or with respect to the
Senior Loan Documents, including, in the event of a Bankruptcy Event, any and
all post-petition interest and costs from and after the date of filing of a
petition by or against any Debtor or its bankruptcy estate, whether or not such
amounts are allowed as a claim against any Debtor in any Bankruptcy Event; plus
(c) all costs and expenses incurred by Senior Creditor in connection with its
enforcement of any rights or remedies under the Senior Loan Documents, the
collection of any of the Senior Debt, or the protection of, or realization upon,
any Collateral, including, by way of example, court costs, appraisal and
consulting fees, reasonable attorneys’ fees, auctioneers’ fees, rent, storage,
insurance premiums and like items, and whether or not such amounts are allowed
as a claim against any Debtor in connection with any Bankruptcy Event; plus (d)
all fees, charges, and indemnities owing by any Debtor to Senior Creditor under
or in connection with the Senior Loan Documents; plus (e) all principal,
interest, fees, costs and expenses in connection with any debtor-in-possession
financing provided by Senior Creditor to one or more Debtors in connection with
a Bankruptcy Event.

     

    “Senior
Loan Agreement”: has the meaning set forth in the recitals of this
Agreement.

     

    “Senior
Loan Documents”: has the meaning set forth in the recitals of this
Agreement.

     

    “Subordinated
Debenture”: has the meaning set forth in the recitals of this
Agreement.

     

    “Subordinated
Debenture Agreement”: has the meaning set forth in the recitals of this
Agreement.

     

    “Subordinated
Debenture Documents”: has the meaning set forth in the recitals of this
Agreement.

     

    
      
        
        

      

      
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    “Subordinated
Debenture Guarantee”: has the meaning set forth in the recitals of this
Agreement.

     

    “Subordinated
Debenture Security Agreement”: has the meaning set forth in the recitals
of this Agreement.

     

    2.           Subordination
of Debt.

     

    (a)           Debtors
may pay, and Junior Creditors may retain, Permitted Payments (as defined below)
with respect to the Junior Debt, provided that following the commencement of an
Enforcement Action and for so long as an Enforcement Action remains ongoing,
Junior Creditors shall be entitled to no Permitted Payments until the Senior
Creditor Repayment shall have occurred, other than Permitted Payments described
in Section 2(c)(i). Unless and until the Senior Creditor Repayment shall have
occurred, no Junior Creditor will ask for, demand, sue for, take or receive from
any Debtor, by setoff or in any other manner, the whole or any part of the
Junior Debt which does not constitute a Permitted Payment, including, without
limitation, the taking of any negotiable instruments evidencing such amounts
(other than debentures now or hereafter issued in connection with Junior Debt
which are subordinated pursuant to the terms and conditions hereof and which
contain the subordination legend required hereby), or the taking of any security
for any of the Junior Debt (other than security interests in the Collateral
pursuant to the Subordinated Debenture Documents in effect on the date hereof
unless permitted by Section 8 hereof), and while an Enforcement Action is
outstanding, the holders of the Junior Debt will not accept any Permitted
Payments (other than Permitted Payments described in Section 2(c)(i)) (or if
received will pay them over to Senior Lender).

     

    (b)           Subject
to the terms of Section 2(a) above, unless and until the Senior Creditor
Repayment shall have occurred, in the event that any Junior Creditor shall
receive any cash payment or distribution with respect to the Junior Debt which
does not constitute a Permitted Payment, then, in such event, such payment or
distribution (other than a Permitted Payment described in Section 2(c)(i)) shall
be deemed to have been paid to such Junior Creditor in trust for the benefit of
Senior Creditor and shall be immediately paid over to Senior Creditor in the
form received by such Junior Creditor (with proper endorsements or assignments,
if necessary) to the extent necessary to pay the Senior Debt after giving effect
to any concurrent payment to Senior Creditor from other sources.

     

    (c)           As
used herein, the term “Permitted Payment”
shall mean any of the following:

     

    (i)           non-cash
payments of principal, interest or other amounts due to one or more Junior
Creditors pursuant to and in accordance with the Subordinated Debenture
Documents via the issuance of Parent’s capital stock;

     

    (ii)          so
long as no Blockage Period is in effect and no Enforcement Action has been
commenced and is continuing, cash payments of liquidated damages made pursuant
to the Subordinated Debenture Documents as in effect on the date hereof or as
amended as permitted by this Agreement;

     

    
      
        
        

      

      
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    (iii)         so
long as the outstanding principal balance of the Senior Debt is no more than
$2,500,000 and so long as no Blockage Period is in effect and no Enforcement
Action has been commenced and is continuing, cash payments on account of
Quarterly Redemption Amounts due under the Subordinated Debentures, provided
that no such payment shall be made unless (x) as of the end of the month
immediately preceding payment of any proposed Quarterly Redemption Amount the
Debtors are in compliance with each of the financial covenants set forth in the
Senior Loan Agreement required to be complied with as of the end of such
preceding month, and (y) no less than ten (10) days prior to the proposed date
of payment of such Quarterly Redemption Amount, Debtors shall have delivered to
Senior Creditor and Junior Creditor Agent written certification of such
compliance, together, in the case of Senior Creditor, with calculations in
reasonable detail evidencing compliance with such financial covenants (if
requested in writing, and only if requested in writing, subject to Section 4.8
of the Original Subordinated Debenture Agreement, the Debtors shall deliver
calculations in reasonable detail evidencing compliance with such financial
covenants to the Junior Creditor Agent); and

     

    (iv)         so
long as no Blockage Period is in effect an no Enforcement Action has been
commenced and is continuing, reimbursement of out of pocket expenses (including,
if applicable, legal fees and expenses) payable to Junior Creditors pursuant to
the Subordinated Debenture Documents (as in effect as of the date of this
Agreement) and Section 32 of this Agreement.

     

    (d)           The
rights of each Junior Creditor to receive any payments with respect to the
Subordinated Debenture Documents (other than Permitted Payments described in
Section 2(c)(i)) will be suspended upon delivery of a Blockage Notice to Junior
Agent. Upon the termination of any Blockage Period, each Junior Creditor’s right
to receive Permitted Payments as provided above shall be reinstated, and Debtors
may resume making such payments to Junior Creditors (including any payments that
were deferred as a result thereof). The aggregate number of days in any
consecutive 365-day period during which Blockage Periods may be in effect solely
as a result of Non-Payment Defaults shall be 180 days. No Blockage Period may be
imposed by Senior Creditor as a result of any Non-Payment Default existing on
the date that any previous Blockage Notice was given and of which an officer of
Senior Creditor had actual knowledge on the date such Blockage Notice was
given.

     

    3.           Subordination
of Liens. Unless
and until the Senior Creditor Repayment shall have occurred, each Debtor, for
itself and its successors and assigns, covenants and agrees, and each Junior
Creditor, for itself and its successors and assigns, hereby covenants and
agrees, that all Liens now or hereafter acquired by Senior Creditor in any or
all of the Collateral shall at all times be prior and superior to any Lien now
held or hereafter acquired by any Junior Creditor in the Collateral. Said
priority shall be applicable irrespective of the time or order of attachment or
perfection of any Lien or the time or order of filing of any financing
statements or other documents, or any statutes, rules or law, or court decisions
to the contrary. The Lien subordination provisions in this Agreement are for the
benefit of and shall be enforceable directly by Senior Creditor, and Senior
Creditor shall be deemed to have acquired the Senior Debt in reliance upon this
Agreement.

     

    
      
        
        

      

      
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    4.           Disposition
of Collateral.

     

    (a)           Each
Junior Creditor hereby agrees that, until the Senior Creditor Repayment, Senior
Creditor may dispose of, and exercise any other rights with respect to, any or
all of the Collateral, free of the Liens of such Junior Creditor, provided that
such Junior Creditor retains any rights it may have as a junior secured creditor
with respect to the Junior Debt with respect to the surplus, if any, arising
from any such disposition or enforcement. Upon any disposition of any of the
Collateral by Senior Creditor, each Junior Creditor (i) agrees, if requested, to
execute and immediately deliver any and all releases or other documents or
agreements which Senior Creditor deems reasonably necessary to accomplish a
disposition thereof free of the Liens of such Junior Creditor, and (ii)
authorizes Senior Creditor to record, or cause to have recorded, any UCC
financing statements which Senior Creditor deems reasonably necessary to
accomplish a disposition thereof free of the Liens of such Junior Creditor (it
being understood that Senior Creditor shall not release any Liens of any Junior
Creditor in any Collateral which is not the subject of such disposition). Each
Junior Creditor agrees that any funds of any Debtor which it obtains through the
exercise of any right of setoff or other similar right constitute Collateral,
and each Junior Creditor shall immediately pay such funds to Senior Creditor to
be applied to the outstanding Senior Debt. Senior Creditor agrees to act in a
commercially reasonable fashion in connection with any disposition of any
Collateral by Senior Creditor.

     

    (b)           In
the event of a sale or other disposition by any Debtor of some or all of the
Collateral in connection with the liquidation or winding up of its business,
each Junior Creditor agrees to release its Lien on such Collateral promptly (and
in any event within three business days) upon the request of Senior Creditor,
whether or not such Junior Creditor will receive any proceeds from such sale,
but only if the net proceeds are used to pay the Senior Debt in cash and, if
such net proceeds are sufficient to repay the Senior Debt in full, if the
remaining proceeds are used to pay the Junior Debt in cash (unless otherwise
required by applicable law). Should any Junior Creditor fail to provide a
release of its Lien in any such Collateral sold or agree in writing to release
its Lien contemporaneously with any such sale in accordance with the provisions
of the preceding sentence (including the application of proceeds) within three
(3) business days after its receipt of Senior Creditor’s written request, Senior
Creditor may, acting as such Junior Creditor’s attorney-in-fact, do so itself in
such Junior Creditor’s name. Such power of attorney is coupled with an interest
and is irrevocable until the Senior Creditor Repayment shall have
occurred.

     

    5.           Limitations
on Rights and Remedies.

     

    (a)           So
long as a Blockage Period is in effect or if Senior Lender has commenced and is
diligently pursuing an Enforcement Action, each Junior Creditor hereby agrees,
severally and not jointly with the other Junior Creditors, that it shall not
exercise any rights or remedies with respect to any Debtor or any Collateral,
including, without limitation, the right to (a) enforce any Liens or repossess,
sell or otherwise foreclose on any portion of the Collateral, or (b) request any
action, institute litigation or other proceedings, give any instructions, make
any election, notice account debtors or make collections with respect to any
portion of the Collateral; provided, however, that if
Debtors or Senior Creditor shall cure the applicable event of default under the
Subordinated Debenture Documents prior to the taking of such remedial action by
any Junior Creditor, no Junior Creditor will take or continue any remedial
action with respect to such event of default after the date of such cure; and,
until the Senior Creditor Repayment, any payments, distributions or proceeds
resulting from the exercise of any such remedial action received by any Junior
Creditor shall be subject to the terms of this Agreement and shall be paid or
delivered to Senior Creditor as provided in this Agreement; provided, further,
notwithstanding anything to the contrary contained herein, Junior Creditors
shall not be prohibited (at any time, with or without notice, even during a
Blockage Period or while an Enforcement Action is outstanding) from taking
action against the Debtors to (x) collect Permitted Payments described in
Section 2(c)(i) including, without limitation, seeking specific performance or
taking action against the Borrowers to collect capital stock of the Parent at
any time any Debtor is obligated to issue the same to the extent such obligation
is a non-cash obligation that would constitute a Permitted Payment under Section
2(c)(i), or (y) seeking specific performance against the Debtors to enforce the
provisions of the Subordinated Debenture Documents described on Schedule 3 attached
hereto.

     

    
      
        
        

      

      
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    (b)           To
the extent that any Default under the Senior Loan Documents gives rise to a
“cross default” under the Subordinated Debenture Documents (a “Junior Cross
Default”), the cure or waiver of such Default under the Senior Loan
Documents shall be deemed to automatically cure or waive such Junior Cross
Default under the Subordinated Debenture Documents. To the extent that any
default or event of default under the Subordinated Debenture Documents gives
rise to a “cross default” under the Senior Loan Documents (a “Senior Cross
Default”), the cure or waiver of such default or event of default under
the Subordinated Debenture Documents shall be deemed to automatically cure or
waive such Senior Cross Default under the Senior Loan Documents.

     

    6.           Intercreditor
Arrangements in Bankruptcy.

     

    (a)           Notwithstanding
any Bankruptcy Event, this Agreement shall remain in full force and effect and
enforceable pursuant to its terms in accordance with Section 510(a) of the
Bankruptcy Code, and all references herein to any Debtor shall be deemed to
apply to such entity as debtor in possession and to any trustee in bankruptcy
for the estate of such entity.

     

    (b)           Except
as otherwise specifically permitted in this Section 6, until the Senior Creditor
Repayment, no Junior Creditor shall assert, without the written consent of
Senior Creditor, which consent may be granted or withheld in Senior Creditor’s
sole discretion, any claim, motion, objection, or argument in respect of any
Collateral in connection with any Bankruptcy Event which could otherwise be
asserted or raised in connection with such Bankruptcy Event by such Junior
Creditor as a secured creditor of the applicable Debtor, including without
limitation any claim, motion, objection or argument seeking adequate protection
or relief from the automatic stay in respect of any Collateral.

     

    (c)           Without
limiting the generality of the foregoing, each Junior Creditor agrees that if a
Bankruptcy Event occurs, (i) Senior Creditor may consent to the use of cash
collateral on such terms and conditions and in such amounts as Senior Creditor,
in its discretion, may decide without seeking or obtaining the consent of such
Junior Creditor as holder of an interest in the Collateral; (ii) Senior Creditor
may (A) provide financing to any Debtor or (B) consent to the granting of a
priming Lien to secure post-petition financing, in each case pursuant to Section
364 of the Bankruptcy Code or other applicable law and on such terms and
conditions and in such amounts as Senior Creditor, in its sole discretion, may
decide without seeking or obtaining the consent of such Junior Creditor as
holder of an interest in the Collateral; (iii) such Junior Creditor shall not
oppose any Debtor’s use of cash collateral to the extent such use has been
approved by Senior Creditor; (iv) such Junior Creditor shall not oppose any sale
or other disposition of any Collateral free and clear of Liens or other claims
of any Person, including such Junior Creditor, under Section 363 of the
Bankruptcy Code if Senior Creditor has consented to such sale or disposition of
such assets.

     

    
      
        
        

      

      
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    (d)           Each
Junior Creditor agrees that it will not initiate, prosecute, encourage, or
assist with any other Person to initiate or prosecute any claim, action or other
proceeding (i) challenging the validity or enforceability of this
Agreement, (ii) challenging the validity or enforceability of Senior Creditor’s
claim against any of the Debtors, (iii) challenging the perfection or
enforceability of any of Senior Creditor’s Liens, or (iv) asserting any claims
which any Debtor may hold with respect to Senior Creditor or the Senior Debt, if
any.

     

    (e)           Notwithstanding
any other provision of this Section 6, (i) each Junior Creditor shall be
entitled to file any necessary responsive or defensive pleadings in opposition
to any motion, claim, adversary proceeding or other pleading made by any Person
objecting to or otherwise seeking the disallowance of the claims of such Junior
Creditor, including without limitation any claims secured by the Collateral, and
(ii) each Junior Creditor shall be entitled to file any pleadings, objections,
motions or agreements which (y) assert rights or interests available to
unsecured creditors of the applicable Debtor arising under either the Bankruptcy
Code or applicable non-bankruptcy law or (z) which preserve Junior Creditors’
rights to the Collateral after giving effect to the Senior Creditor Repayment
which do not adversely affect the rights of Senior Creditor.

     

    7.           Bankruptcy
Event. In the
event of any Bankruptcy Event, as between Senior Creditor and Junior Creditors,
the following shall apply:

     

    (a)           Upon
any payment or distribution of assets or securities of any kind or character,
whether in cash, securities or other property, of any Debtor or the estate
created by the commencement of any such Bankruptcy Event, the Senior Debt shall
first be paid irrevocably in full in cash before any Junior Creditor shall be
entitled to receive any payment or distribution of any cash, securities or other
property on account of the Junior Debt.

     

    (b)           Senior
Creditor shall be entitled to receive from Debtors and any other Person making
any distribution in accordance with clause (a) above any payment or distribution
of any kind or character, whether in cash, securities or other property which
may be payable or deliverable in respect of the Junior Debt in connection with
any such Bankruptcy Event for application to the payment of the Senior Debt (to
the extent necessary to pay such Senior Debt after giving effect to any
concurrent payment to Senior Creditor). To facilitate the foregoing, each Junior
Creditor irrevocably authorizes, empowers and directs any Debtor, debtor in
possession, receiver, liquidator, custodian, conservator, trustee or other
Person having authority to pay or otherwise deliver all such payments or
distributions to Senior Creditor as required by this clause (b).

     

    
      
        
        

      

      
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    (c)           In
the event that, notwithstanding the foregoing provisions of clause (b) above,
any Junior Creditor receives any payment from or distribution of assets or
securities of any Debtor or the estate created by the commencement of any such
Bankruptcy Event, of any kind or character in respect of the Junior Debt,
whether in cash, securities or other property before the Senior Creditor
Repayment shall have occurred, then, and in such event, such payment or
distribution shall be received and held in trust by such Junior Creditor for the
benefit of Senior Creditor and shall be promptly paid over or delivered by such
Junior Creditor to Senior Creditor to the extent necessary to pay the Senior
Debt in full after giving effect to any concurrent payment to Senior Creditor.
In addition, to the extent that Senior Creditor receives a payment in excess of
the amount required to effectuate the Senior Creditor Repayment, then Senior
Creditor shall, unless otherwise required by applicable law or court order, hold
such excess amount in trust for the Junior Creditors and promptly pay such
excess amount to Junior Agent for the benefit of Junior Creditors, and Junior
Agent and Junior Creditors shall allocate such amount among themselves in such
manner as they elect.

     

    (d)           Each
Junior Creditor covenants and agrees to provide Senior Creditor with a copy of
any proof of claim filed by such Junior Creditor in connection with any
Bankruptcy Event, and Senior Creditor agrees to provide Junior Creditors with a
copy of any proof of claim filed by Senior Creditor in connection with any
Bankruptcy Event.

     

    (e)           In
connection with any Bankruptcy Event, each Junior Creditor agrees that it shall
not vote to accept or approve any plan of partial or complete liquidation,
reorganization, arrangement, composition or extension (nor shall it provide any
financing to any Debtor or its affiliates under any such plan) that would (i)
not provide for the payment in full of all Senior Debt in cash, unless Senior
Creditor has voted to accept such plan (which vote shall be within Senior
Creditor’s sole and absolute discretion), or (ii) cause such Junior Creditor or
any affiliate thereof to receive any payment in respect of Junior Debt (other
than current interest in connection with any debt owing to such Junior Creditor
pursuant to a plan of reorganization, provided that the payment of such current
interest is subordinated to the Senior Debt on substantially the terms set forth
herein) prior to the Senior Creditor Repayment.

     

    8.           No
Additional Liens. Other
than as set forth in the Subordinated Debenture Security Agreement, each Junior
Creditor hereby represents, severally, and not jointly with the other Junior
Creditors, that such Junior Creditor has not been granted or obtained any Liens
in any assets of any Debtor or any other assets securing the Senior Debt. Each
Junior Creditor agrees that, without the prior written consent of Senior
Creditor, no Junior Creditor will take any other Liens on any assets of any
Debtor or any other assets as security for the Junior Debt unless Senior
Creditor also has a Lien on such assets which is senior to that of the
applicable Junior Creditor, and no Junior Creditor shall obtain any additional
guarantees for the Junior Debt unless the Person obligated under such guaranty
also guarantees the Senior Debt and such guaranty in favor of Junior Creditor(s)
is subordinated to such guaranty in favor of Senior Creditor in a manner
consistent with the terms and conditions of this Agreement pursuant to
documentation reasonably acceptable to Senior Creditor.

     

    
      
        
        

      

      
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    9.           Junior
Debt Owed Only to Junior Creditors; Restrictions on
Transfer.

     

    (a)           Each
Junior Creditor represents and warrants severally, and not jointly with the
other Junior Creditors that: (a) no Junior Creditor has previously assigned any
interest in the Junior Debt or any Lien in connection therewith, if any; (b) no
Person other than Junior Creditors owns an interest in any Junior Debt or
security therefor (whether as joint holders of the Junior Debt, participants or
otherwise); and (c) the entire Junior Debt is owing only to Junior Creditors.
Each Junior Creditor covenants that, in the event that such Junior Creditor
wishes to transfer, in whole or in part, all or any part of the Junior Debt or
any Lien therefor to another Person, then the terms and conditions of this
Agreement will be and remain binding upon the Junior Debt and all Liens
therefor, and such Junior Creditor shall cause such proposed transferee, before
any such transfer is made, to execute and deliver to Senior Creditor a written
acknowledgment in form and substance reasonably acceptable to Senior Creditor,
pursuant to which such proposed transferee acknowledges that it will constitute
a Junior Creditor hereunder and be bound by the terms and conditions
hereof.

     

    (b)           Senior
Creditor covenants that, in the event that the Senior Creditor wishes to
transfer, in whole or in part, all or any part of the Senior Debt or any Lien
therefor to another Person, then the terms and conditions of this Agreement will
be and remain binding upon the Senior Debt and all Liens therefor, and Senior
Creditor shall cause such proposed transferee, before any such transfer is made,
to execute and deliver to the Junior Creditors a written acknowledgment that
such proposed transferee acknowledges that it will constitute a Senior Creditor
hereunder and be bound by the terms and conditions hereof. Senior Creditor
agrees that (i) in the event of any transfer by Senior Creditor of less than all
of the Senior Debt, ACF CGS, L.L.C. shall continue to serve as administrative
agent for the holder(s) of Senior Debt (including for purposes of administering
and enforcing this Agreement), and (ii) in the event of the transfer by Senior
Creditor of all of the Senior Debt then held by Senior Creditor, prior to
consummating any such transfer, Senior Creditor shall notify Junior Agent of
such proposed transfer (the “Transfer Notice”)
(which notice shall include the identity of the proposed transferee(s) and the
scheduled date of closing of the transfer to such person(s) (the “Scheduled Transfer
Date”)), and Junior Creditors shall have the right to exercise the
Purchase Option with respect to all, but not less than all of the Senior Debt,
upon the terms and conditions described in Section 10 below; provided, however,
that in such event Junior Creditors desiring to exercise the Purchase Option
shall deliver a Purchase Option Notice to ACF CGS, L.L.C. within two (2) days
following delivery of the Transfer Notice by ACF CGS, L.L.C., and shall
consummate the Purchase Option and pay the Option Purchase Price no later than
the later of (A) the Scheduled Transfer Date identified in the Transfer Notice,
or four (4) business days following the date of delivery of the Purchase Option
Notice.

     

    
      
        
        

      

      
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    10.         Purchase
Option.

     

    (a)           Senior
Creditor shall give Junior Agent a copy of any written notice of acceleration of
any Senior Debt given by Senior Creditor to one or more Debtors, concurrently
with, or as soon as practicable after, the giving of such notice to such
Debtors. For a period of 10 calendar days following receipt of such notice by
Junior Agent (the “Option Period”),
Junior Creditors shall have the option (the “Purchase Option”) to
purchase from Senior Creditor (i) all, but not less than all, of the Senior Debt
owed to Senior Creditor at the time of purchase (excluding the Retained Debt, as
defined below) and (ii) all of Senior Creditor’s right, title and interest in
and to, and all of Senior Creditor’s obligations under, the Senior Loan
Documents (excluding the Retained Interests, as defined below, and excluding all
rights and remedies of Senior Creditor under and with respect to any warrant,
registration rights agreement, capital stock of any Debtor and other similar
equity investments) (all such property referred to in clauses (i) and (ii) being
collectively called the “Assigned Interests”).
At any time during the Option Period, Junior Creditors may exercise the Purchase
Option by causing Junior Agent to deliver to Senior Creditor a written notice of
intent to exercise the Purchase Option (the “Purchase Option
Notice”), in which notice Junior Agent shall specify the date of closing
(which shall be a business day within the Option Period). On the closing date
specified in the Purchase Option Notice, Senior Creditor shall, pursuant to an
assignment agreement in form and substance satisfactory to Senior Creditor and
Junior Creditors, assign all of its right, title and interest in and to the
Assigned Interests to Junior Creditors, without representation, recourse or
warranty (except as expressly set forth below), upon Senior Creditor’s
receipt of payment, in cash (and in immediately available federal funds by wire
transfer to a bank account designated by Senior Creditor), of the purchase price
(the “Option Purchase
Price”), which shall be an amount equal to 100% of the Senior Debt owed
on the date of payment to Senior Creditor (it being understood and agreed to by
all parties that any purchase and sale consummated pursuant to this Section 10
shall be deemed to be a prepayment of all of the Senior Debt for all purposes of
the Senior Loan Documents), including, without limitation, (w) all unpaid
interest, fees and any other charges, without regard to whether or not such
amounts are allowed or are recoverable pursuant to Section 506 of the Bankruptcy
Code or otherwise, (x) any prepayment fee or early termination fee set forth in
the Senior Loan Documents, and (y) any amounts that are due and payable to
Senior Creditor in respect of claims for which Senior Creditor is entitled to
indemnification under the Senior Loan Documents, but excluding the Retained
Debt. Without duplication of any amounts to be paid as part of the Option
Purchase Price, Junior Creditor shall furnish to Senior Creditor on the date of
closing on the Purchase Option cash collateral as security to Senior Creditor
for the payment of all Asserted Known Indemnification Claims, as defined below,
such cash collateral to be an amount equal to 100% of such claims. The election
to exercise the Purchase Option pursuant to the Purchase Option Notice shall be
irrevocable and shall fully obligate and commit Junior Creditors to acquire the
Assigned Interests as herein provided. The amount of and payment of the Option
Purchase Price or any other sum required to be paid by Junior Creditors to
Senior Creditor pursuant to this Section 10 shall not be subject to any defense,
reduction, recoupment or offset, for any reason, including, without limitation,
any breach or alleged breach by Senior Creditor at any time of any provision of
this Agreement. The failure of Junior Agent to deliver the Purchase Option
Notice so that it is received by Senior Creditor prior to expiration of the
Option Period or to consummate the purchase pursuant to the Purchase Option as
provided herein prior to the expiration of the Option Period shall result in the
forfeiture of the Purchase Option, unless otherwise agreed by Senior Creditor in
its sole discretion. As used herein, the term “Retained Debt” shall
mean any and all amounts required to be paid by any Debtor to Senior Creditor
pursuant to any indemnity provisions contained in any of the Senior Loan
Documents, the claim for which arises or becomes due and payable after the
consummation of the purchase by Junior Creditor pursuant to the Purchase Option;
the term “Retained Interests” shall mean the rights and interest retained by
Senior Creditor under all of the Senior Loan Documents, notwithstanding the sale
and the assignment of the Assigned Interests, in respect of the Retained Debt
and in respect of indemnification obligations of Debtors in accordance with the
Senior Loan Documents (all of which shall survive the sale and assignment of the
Assigned Interests and continue to benefit Senior Creditor); and the term “Asserted Known
Indemnification Claim” means any matters or circumstances for which
notice or demand has been made or asserted against Senior Creditor in writing
that at the time of determination could reasonably be expected to result in
direct or actual damages and expenses (including, without limitation, reasonable
and documented attorneys’ fees and disbursements but excluding special,
indirect, consequential or punitive damages to Senior Creditor) to Senior
Creditor and which are subject to indemnification by any Debtor pursuant to the
terms of the Senior Loan Documents. Any reference to the amount of any Asserted
Known Indemnification Claim shall mean that amount as reasonably determined by
Senior Creditor in light of the facts and circumstances of the underlying claim.
In connection with any such sale or assignment, each Debtor agrees to execute
and deliver to Senior Creditor all such agreements, instruments or documents as
Senior Creditor may reasonably request to evidence the survival of such rights,
interest and obligations. The grant of the Purchase Option shall not operate to
restrict Senior Creditor from assigning or transferring to any Person any or all
of its loan commitments under the Senior Loan Documents or any Senior Debt owing
to it or any of its rights or other interests under the Senior Loan Documents,
so long as such Person agrees to be bound by the terms of this Section
10.

     

    
      
        
        

      

      
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    (b)           The
purchase price and any cash collateral shall be remitted by wire transfer of
immediately available funds to such bank account of Senior Creditor as Senior
Creditor may designate in writing to Junior Agent for such purpose. Interest
shall be calculated to but excluding the business day on which such purchase and
sale shall occur if the amounts so paid by Junior Creditors to the bank account
designated by Senior Creditor are received in such bank account prior to 1:00
p.m. Central time. Interest shall be calculated to and including the business
day on which such purchase and sale shall occur if the amounts so paid by Junior
Creditors to the bank account designated by Senior Creditor are received in such
bank account after 1:00 p.m. Central time.

     

    (c)           The
obligation of Senior Creditor to consummate any sale pursuant to the Purchase
Option shall be subject to (i) obtaining any required approval of any applicable
governmental authority and (ii) Senior Creditor’s receipt of an undertaking (in
form and substance satisfactory to Senior Creditor) from Junior Creditors to
reimburse Senior Creditor for any loss, cost or expense (including interest at
the rate applicable under the Senior Loan Agreement) outstanding on the date the
Purchase Option is exercised and reasonable attorney’s fees and other legal
expenses) relating to any payment items that have been provisionally credited to
any of the Senior Debt and that are returned unpaid or are otherwise dishonored
or charged back.

     

    (d)           Any
purchase pursuant to the Purchase Option shall be without any representation or
warranty of any kind by Senior Creditor as to any of the Assigned Interests or
otherwise and without recourse to Senior Creditor, except that Senior Creditor
shall represent and warrant to Junior Creditors: (i) the amount of the Senior
Debt being purchased from Senior Creditor, (ii) that Senior Creditor owns such
Senior Debt free and clear of any Liens and (iii) that Senior Creditor has the
right to assign such Senior Debt and the assignment is duly
authorized.

     

    (e)           Upon
the consummation of any purchase and sale pursuant to the Purchase Option,
Junior Creditors (and not Senior Creditor) shall thereafter be obligated
pursuant to the terms of the Senior Loan Documents with respect to the Assigned
Interests and responsible for the discharge and performance of all of the
duties, responsibilities and obligations of Senior Creditor under the loan
commitments included within the Assigned Interests, with the Junior Creditors
thereafter being deemed to be the “Lender” for all purposes under the Senior
Loan Documents (except with respect to the Retained Debt and Retained Interests)
and with Senior Creditor thereafter being released from its duties,
responsibilities and obligations under the Senior Loan Documents.

     

    
      
        
        

      

      
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    (f)           All
Retained Debt shall remain secured by the Collateral, Junior Agent shall act as
collateral agent for Senior Creditor in connection with all Retained Debt and
Senior Creditor shall have the benefits of the Retained Interests in the Senior
Loan Documents. Senior Creditor shall be entitled to payment in respect of such
Retained Debt on the due date of any such Retained Debt.

     

    (g)           Each
Debtor agrees that any such sale and assignment by Senior Creditor of the
Assigned Interests shall not operate to terminate or impair such Debtor’s
obligations to indemnify Senior Creditor or the obligations of such Debtor with
respect to any Retained Rights under the Senior Loan Documents or otherwise, all
of which indemnity and other obligations with respect to the Retained Rights
shall survive any such sale and assignment. Nothing in this Section 10 shall be
deemed to require Senior Creditor to extend any credit to any Debtor during the
Option Period.

     

    (h)           Junior
Creditors agree that, after consummation of any purchase of the Assigned
Interests in accordance with this Section 10, Junior Creditors will not
authorize or allow any amendment to be made to any of the provisions of the
Senior Loan Documents in a manner that would restrict or otherwise adversely
effect the Retained Interests or the security for the Retained
Debt.

     

    (i)           For
avoidance of doubt, Junior Creditors agree and acknowledge that Senior Creditor
shall not be required to provide any prior notice to Junior Creditor of Senior
Creditor’s commencement of, or intent to commence, any enforcement action
against or with respect to any Debtor or any of the Collateral, and Senior
Creditor shall not be obligated to forbear from taking any such enforcement
action during the Option Period.

     

    (j)           Notwithstanding
anything herein to the contrary, the rights and obligations of each Junior
Creditor hereunder are several and not joint with the rights and obligations of
any other Junior Creditor and no Junior Creditor shall have liability or
obligations hereunder unless and until such Junior Creditor duly exercises its
rights hereunder in its sole discretion.

     

    11.         Continuing
Nature of Subordination. This
Agreement will be effective and may not be terminated or otherwise revoked by
any Junior Creditor until the Senior Creditor Repayment shall have occurred.
Each Junior Creditor hereby waives to the fullest extent permitted by applicable
law any right it may have to terminate or revoke this Agreement or any of the
provisions of this Agreement. In the event that any Junior Creditor has any
right under applicable law otherwise to terminate or revoke this Agreement which
right cannot be waived, such termination or revocation will not be effective
until written notice of such termination or revocation, signed by such Junior
Creditor, is actually received by Senior Creditor’s officer responsible for such
matters. In the absence of the circumstances described in the immediately
preceding sentence, this is a continuing agreement of subordination and Senior
Creditor may continue, at any time and without notice to any Junior Creditor, to
extend credit or other financial accommodations and loan monies to or for the
benefit of Debtors on the faith hereof. Any termination or revocation described
hereinabove will not affect this Agreement in relation to any of the Senior Debt
which arose or was committed to prior to receipt thereof.

     

    
      
        
        

      

      
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    12.         Invalidated
Payments; Waivers by Junior Creditors.

     

    (a)           To
the extent that Senior Creditor receives payments or transfers on the Senior
Debt or proceeds of the Collateral which are subsequently invalidated, declared
to be fraudulent or preferential, set aside, avoided and/or required to be
repaid to a trustee, receiver or any other Person under any bankruptcy law,
state or federal law, common law, or equitable cause or pursuant to the Senior
Loan Documents, then, to the extent of such payment or proceeds received, the
Senior Debt, or part thereof, intended to be satisfied shall be revived and
continue in full force and effect as if such payments or proceeds had not been
received by Senior Creditor.

     

    (b)           Each
Junior Creditor hereby waives and releases, to the fullest extent permitted by
applicable law, any claim which such Junior Creditor may now or hereafter have
against Senior Creditor arising out of any and all actions which Senior Creditor
takes or omits to take with respect to any Debtor, any Collateral or any Senior
Loan Document, including, without limitation: (a) any action or inaction with
respect to the creation, perfection or continuation of Liens on the Collateral
and other security for the Senior Debt, (b) any action or inaction with respect
to the occurrence of any Default, (c) any action or inaction with respect to the
foreclosure upon, repossession, sale, release or depreciation of, or failure to
realize upon, any of the Collateral, (d) any action or inaction with respect to
the collection of any claim for any part of the Senior Debt from any account
debtor, guarantor, or any other Person, (e) any other action or inaction with
respect to the enforcement of the Senior Loan Documents or the valuation, use,
protection or disposition of the Collateral or any other security for the Senior
Debt, (f) the election of Senior Creditor, in any proceeding instituted under
Chapter 11 of the Bankruptcy Code, for application of Section 1111(b) of the
Bankruptcy Code; provided, however, that the foregoing shall not apply to any
actions or omissions of Senior Creditor constituting a violation of applicable
law or a violation of this Agreement or, with respect to matters relating to the
realization, foreclosure or other disposition of Collateral, the failure of
Senior Creditor to act in a commercially reasonable mariner.

     

    
      
        
        

      

      
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    13.         Additional
Senior Debt; Amendments to Loan Documents.

     

    (a)           Senior
Creditor may from time to time in its discretion make Additional Senior Loans to
the Debtors, provided, that prior to making any such Additional Senior Loan
Senior Creditor shall notify Junior Agent in writing (an “Additional Senior Loan
Notice”) of the proposed terms and conditions thereof (including, without
limitation, the proposed amount, ranking, pricing, date of funding (the “Proposed Additional Senior
Loan Funding Date”), and all other material terms relating to such
proposed Additional Senior Loan), which notice shall be accompanied by the
definitive agreements that Senior Creditor would propose to use in connection
with such Additional Senior Loan (the “Proposed Additional Senior
Loan Documents”), and Junior Creditors shall have the option to provide
all but not less than all of such Additional Senior Loan on the terms set forth
in the Additional Senior Loan Notice and the Proposed Additional Senior Loan
Documents. Junior Agent shall notify Senior Creditor in writing (the “Junior Creditor Commitment
Notice”) within three (3) business days following receipt of an
Additional Senior Loan Notice of Junior Creditors’ election whether or not to
provide the Additional Senior Loan to the Debtors on the terms described in the
Additional Senior Loan Notice and the Proposed Additional Senior Loan Documents
(provided that the failure of Junior Agent to respond within such time period
shall be deemed to be an election of Junior Creditors not to provide such
Additional Senior Loan), which notice shall (i) identify the applicable Junior
Creditor(s) electing to make the Additional Senior Loan, (ii) indicate the date
on which such Junior Creditors propose to fund such Additional Senior Loan to
the Borrowers, which shall be no later than seven (7) days following the date of
the Junior Creditor Commitment Notice, and (iii) serve as such Junior Creditors’
commitment to make such Additional Senior Loan on the applicable terms and
conditions. If requested by Borrowers, Senior Creditor may, in its sole
discretion, elect to fund the Additional Senior Loan prior to the agreed date of
funding by Junior Creditors, in which event Senior Creditor shall so notify
Junior Agent, and the applicable Junior Creditors shall, no later than the date
seven (7) days following the date of the Junior Creditor Commitment Notice, fund
such Additional Senior Loan to Borrowers with the proceeds to be used to repay
the amount advanced by Senior Creditor. If Junior Creditors elect to make the
Additional Senior Loan, Junior Creditors shall execute and deliver the
Additional Senior Loan Documents and, if applicable, enter into an appropriate
amendment of this Agreement. Notwithstanding anything to the contrary set forth
herein, the Senior Creditor shall not make Additional Senior Loans in an amount
such that the aggregate amount of Senior Debt would exceed the amount described
in clause (a) of the definition of “Senior Debt”.

     

    (b)           Senior
Creditor, at any time and from time to time, may enter into such agreements,
amendments and modifications with any Debtor as Senior Creditor may deem proper,
extending the time of payment of or renewing or otherwise altering the terms and
conditions of all or any portion of the Senior Debt or affecting the security
underlying any or all of the Senior Debt, all without affecting the rights of
Senior Creditor hereunder; provided, however, that Senior Creditor shall not,
without the prior written consent of Junior Creditors holding at least 67% of
the outstanding principal amount of Debentures, agree to any such amendment or
modification which (i) increases the principal amount of the Senior Debt beyond
the limits described in the definition of “Senior Debt” set forth herein, (ii)
extends the stated maturity date of some or all of the Senior Debt; or (iii)
adds any additional events of default or financial covenants.

     

    (c)           Junior
Creditors agree with Senior Creditor that the Subordinated Debenture Documents
may not be materially modified or amended without the prior written consent of
Senior Creditor (including, without limitation, any amendment which has the
effect of shortening the maturity of the Junior Debt, accelerating the due date
of any payment with respect thereto, increasing the interest rate or any fees or
liquidated damages payable in cash with respect thereto, requiring any amount
not required to be paid in cash thereunder to be paid in cash, or making any
covenant more restrictive on any Debtor); provided, however, that Junior
Creditors and Debtors may amend the terms and conditions of any non-cash payment
obligations pursuant to the Subordinated Debenture Documents without the consent
of Senior Creditor.

     

    
      
        
        

      

      
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    14.         No Waiver
by Senior Creditor. No
right of Senior Creditor to enforce the subordination or other terms as provided
in this Agreement will at any time in any way be prejudiced or impaired by any
act or failure to act on the part of any Debtor or by any act or failure to act
by Senior Creditor, or by any noncompliance by any Debtor with the terms,
provisions and covenants of this Agreement, the Senior Loan Documents or the
Subordinated Debenture Documents, regardless of any knowledge thereof which
Senior Creditor may have or be otherwise charged with. No waiver will be deemed
to be made by Senior Creditor of any of Senior Creditor’s rights hereunder,
unless the same will be in writing signed on behalf of Senior Creditor, and each
waiver, if any, will be a waiver only with respect to the specific instance
involved and will in no way impair the rights of Senior Creditor or the
obligations of any Junior Creditor to Senior Creditor in any other respect at
any other time. The failure of Senior Creditor to enforce at any time any
provision of this Agreement will not be construed to be a waiver of such
provisions, nor in any way to affect the validity of this Agreement or any part
hereof or the right of Senior Creditor thereafter to enforce each and every such
provision. No waiver by Senior Creditor of any breach of this Agreement will be
held to constitute a waiver of any other or subsequent breach.

     

    15.         [Intentionally
Omitted]

     

    16.         Information
Concerning Financial Condition of Debtors; Notices of
Default.

     

    (a)           Each
Junior Creditor hereby assumes responsibility for keeping informed of the
financial condition of Debtors, any and all endorsers and any and all other
guarantors of the Junior Debt and/or the Senior Debt and of all other
circumstances bearing upon the risk of nonpayment of the Senior Debt and/or
Junior Debt, and each Junior Creditor hereby agrees that Senior Creditor will
not have any duty to advise such Junior Creditor of any information regarding
such condition or any such circumstances. In the event that Senior Creditor, in
its sole discretion, undertakes, at any time or from time to time, to provide
any such information to any Junior Creditor, Senior Creditor will be under no
obligation (i) to provide any such information to any Junior Creditor on any
subsequent occasion, or (ii) to undertake any investigation or to disclose any
information which Senior Creditor wishes to maintain as
confidential.

     

    (b)           Senior
Creditor hereby assumes responsibility for keeping informed of the financial
condition of Debtors, any and all endorsers and any and all other guarantors of
the Senior Debt and/or the Junior Debt and of all other circumstances bearing
upon the risk of nonpayment of the Senior Debt and/or Junior Debt, and Senior
Creditor hereby agrees that no Junior Creditor will have any duty to advise
Senior Creditor of any information regarding such condition or any such
circumstances. In the event that any Junior Creditor, in its sole discretion,
undertakes, at any time or from time to time, to provide any such information to
Senior Creditor, such Junior Creditor will be under no obligation (i) to provide
any such information to Senior Creditor on any subsequent occasion, or (ii) to
undertake any investigation or to disclose any information which such Junior
Creditor wishes to maintain as confidential.

     

    (c)           Each
Junior Creditor agrees to make reasonable efforts to provide Senior Creditor
with a copy of any notice of default to any Debtor within three business days of
such notice to such Debtor, but any failure of any Junior Creditor to provide
such notice to Senior Creditor shall not result in any liability of such Junior
Creditor to Senior Creditor or limit any rights of such Junior Creditor
hereunder.

     

    (d)           Without
limiting the obligation of Senior Creditor to provide Junior Agent with a copy
of any notice of acceleration as set forth in Section 10(a), Senior Creditor
agrees to make reasonable efforts to provide Junior Agent with a copy of any
notice of default to any Debtor within three business days of such notice to
such Debtor, but any failure of Senior Creditor to provide such notice to Junior
Agent shall not result in any liability of Senior Creditor to Junior Agent or
any Junior Creditor or limit any rights of Senior Creditor
hereunder.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    17.         Payments
to Senior Creditor Do Not Reduce Junior Debt. Each
Debtor acknowledges and agrees that any payment by or on behalf of any Debtor
with respect to any Junior Debt which is paid over to Senior Creditor pursuant
to the terms and conditions hereof shall not be deemed to reduce the Junior
Debt.

     

    18.         Cure of
Payment Default. If a
Payment Default exists at any time, Senior Creditor agrees that any Junior
Creditor may cure such Payment Default by paying to Senior Creditor, in
immediately available funds, the amount necessary to cure such Payment Default,
and Senior Creditor agrees to accept such payment from such Junior Creditor for
application to the Senior Debt. Nothing contained herein shall be deemed to
obligate Senior Creditor to notify Junior Creditor of the existence of any
Default.

     

    19.         Relationship
Among Junior Creditors and Junior Agent, Waiver of
Marshalling. Each
Debtor, Junior Agent and each Junior Creditor acknowledges and agrees that
Senior Creditor has no knowledge of, and shall not have any duty or
responsibility for determining, the relative rights and obligations of Junior
Agent or any Junior Creditor on one hand, to Junior Agent or any other Junior
Creditor, on the other hand, with respect to any Subordinated Debt, any
Collateral, any Subordinated Debenture Document, the Subordinated Debt Control
Account or otherwise Each Debtor and each Junior Creditor hereby waives any
right to require marshalling of any assets by Senior Creditor and any similar
rights.

     

    20.         Confirmation
of Appointment of Junior Agent. Each of
the undersigned Junior Creditors hereby designates Aequitas Capital Management,
Inc. (“Aequitas”) as Junior
Agent under this Agreement (including for purposes of receiving notices on
behalf of each Junior Creditor), and agrees that Aequitas’s rights,
responsibilities and immunities as Junior Agent shall be as set forth in Annex B
to the Subordinated Debenture Security Agreement.

     

    21.         CONSENT
TO JURISDICTION; SERVICE OF PROCESS; NO JURY TRIAL.

     

    (a)           EACH
PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
IN NEW YORK, NEW YORK AND WAIVES ANY OBJECTION BASED UPON FORUM NON CONVENIENS AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION
WILL AFFECT THE RIGHT OF SENIOR CREDITOR TO BRING ANY ACTION OR PROCEEDING
AGAINST ANY OTHER PARTY HERETO OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING COMMENCED BY ANY DEBTOR OR ANY JUNIOR
CREDITOR AGAINST SENIOR CREDITOR OR ANY OTHER HOLDER OF ANY SENIOR DEBT
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED
TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A UNITED STATES
FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW
YORK.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (b)           EACH
OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS
AGREEMENT WITH COUNSEL OF ITS CHOICE AND IS FULLY AWARE OF THE LEGAL
CONSEQUENCES AND EFFECTS HEREOF AND HAS KNOWINGLY AGREED TO THE PROVISIONS
HEREOF.

     

    (c)           EACH
PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH
THIS AGREEMENT, OR (ii) ARISING FROM ANY DISPUTE OR CONTROVERSY IN
CONNECTION WITH OR RELATED TO THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

     

    22.         ARM’S
LENGTH AGREEMENT. EACH OF
THE PARTIES TO THIS AGREEMENT AGREES AND ACKNOWLEDGES THAT THIS AGREEMENT HAS
BEEN NEGOTIATED IN GOOD FAITH, AT ARM’S LENGTH, AND NOT BY ANY MEANS FORBIDDEN
BY LAW.

     

    23.         INJUNCTIVE
RELIEF. EACH
JUNIOR CREDITOR AND EACH DEBTOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND
OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND
AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO SENIOR CREDITOR’S
REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS
OF DEBTORS AND THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND
OBLIGATIONS OF SUCH JUNIOR CREDITOR, SUCH DEBTOR HEREUNDER OR UNDER THE OTHER
DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL
ENTITLE SENIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT
THE NECESSITY OF PROVING IRREPARABLE INJURY TO SENIOR CREDITOR OR THAT SENIOR
CREDITOR DOES NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH
OF WHICH ELEMENTS SUCH JUNIOR CREDITOR, SUCH DEBTOR ADMITS EXIST) AND, AS A
CONSEQUENCE, SUCH JUNIOR CREDITOR, SUCH DEBTOR AGREES THAT EACH AND EVERY
COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE
OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL
BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR CREDITOR, EACH DEBTOR HEREBY
WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC
PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER
THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION
HEREWITH.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    SENIOR
CREDITOR ACKNOWLEDGES AND AGREES THAT ITS COVENANTS AND OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN
CONNECTION HEREWITH ARE INTEGRAL TO EACH JUNIOR CREDITOR’S REALIZATION OF ITS
RIGHTS AGAINST, AND THE VALUE OF ITS INTEREST IN, THE ASSETS OF DEBTORS AND
THEIR AFFILIATES, THAT A BREACH OF ANY OF THE COVENANTS AND OBLIGATIONS OF SUCH
SENIOR CREDITOR HEREUNDER OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND
AGREEMENTS EXECUTED IN CONNECTION HEREWITH WILL ENTITLE EACH JUNIOR CREDITOR TO
INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF PROVING
IRREPARABLE INJURY TO JUNIOR CREDITORS OR THAT ANY JUNIOR CREDITOR DOES NOT HAVE
AN ADEQUATE REMEDY AT LAW IN RESPECT OF SUCH BREACH (EACH OF WHICH ELEMENTS
SENIOR CREDITOR ADMIT EXIST) AND AS A CONSEQUENCE, SENIOR CREDITOR AGREES THAT
EACH AND EVERY COVENANT AND OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS
AGREEMENT OR THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN
CONNECTION HEREWITH WILL BE SPECIFICALLY ENFORCEABLE AGAINST IT. EACH JUNIOR
CREDITOR HEREBY WAIVES AND AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION
FOR SPECIFIC PERFORMANCE OF ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER
AND/OR UNDER THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN
CONNECTION HEREWITH.

     

    24.           Notices. Except
as otherwise provided for herein, whenever it is provided herein that any
notice, demand, request, consent, approval, declaration or other communication
will or may be given to or served upon either of the parties by the other, or
whenever either of the parties desires to give or serve upon the other
communication with respect to this Agreement, such notice, demand, request,
consent, approval, declaration or other communication will be in writing
(including, but not limited to, facsimile communication), and will either be
delivered in person, telecopied, sent by reputable overnight courier or mailed
by first class mail, or registered or certified mail, return receipt requested,
postage prepaid or provided for, addressed as follows:

     

    (a)        
     If to Senior Creditor at:

     

    Archer
Capital Management, L.P.

    570
Lexington Avenue 40th Floor

    New York,
New York

    Attn.:
Mr. Rob Sales

    Fax:
(212) 319-1032

    

    With a
copy to:

     

    Greenberg
Traurig, LLP

    One
International Place

    Boston,
Massachusetts 02110

    Attn:
Jeffrey M. Wolf, Esq.

    Fax:
(617) 310-6001

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (b)        
     If to Junior Agent at:

     

    Aequitas
Capital Management, Inc.

    5300
Meadows road, Suite 400

    Lake
Oswego, OR 97035

    Attn.:
Robert Jesenik, CEO

    Fax:
503-419-3530

    

    With a
copy to:

     

    (c)         
    If to any other Junior Creditor, at its address or
facsimile number set forth beneath its signature block on the signature pages to
this Agreement.

     

    (d)     
        if to any Debtor
at:

     

    Capital
Growth Systems, Inc.

    200 S.
Wacker Drive

    Suite
1650

    Chicago,
Illinois 60606

    Attn.:
Patrick C. Shutt, CEO

    Fax:
312-673-2422

    

    With a
copy to:

    

    Shefsky
& Froelich Ltd,

    111 E.
Wacker Drive, Suite 2800

    Chicago,
Illinois 60601

    Attn:
Mitchell D. Goldsmith

    Fax:
312-275-7569

    

    or to
such other address as any party designates to the other parties in the manner
herein prescribed. Any such notice shall be deemed to have been duly given or
made (w) when delivered by hand against acknowledgment of receipt or (x) three
business days after being deposited in the mail, postage prepaid or (y) one
business day after being sent by priority overnight mail with an internationally
recognized overnight delivery carrier or (z) if by telecopy or facsimile, when
confirmed in writing by the sender’s facsimile device if sent on business day at
the office of the recipient, otherwise on the next business day.

     

    25.         GOVERNING
LAW. ANY
DISPUTE BETWEEN TWO OR MORE PARTIES HERETO ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, INSTRUMENTS OR
AGREEMENTS EXECUTED IN CONNECTION HEREWITH AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, WILL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS (OTHER THAN CONFLICT OF LAW PROVISIONS AND PRINCIPLES, BUT INCLUDING
SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW) OF THE STATE
OF NEW YORK.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    26.         Counterparts;
Facsimile or E-mail Effectiveness. This
Agreement may be executed in one or more counterparts, each of which will be
considered an original counterpart, and will become a binding agreement when
Senior Creditor, Junior Creditors and Debtors have each executed one
counterpart. Each of the parties hereto agrees that a signature transmitted to
Senior Creditor or its counsel by facsimile transmission or by electronic mail
will be effective to bind the party so transmitting its signature.

     

    27.         [INTENTIONALLY
OMITTED]   Complete
Agreement; Merger. This
Agreement, including the schedules and exhibits hereto, contains the entire
understanding of the parties hereto with regard to the subject matter contained
herein. This Agreement supersedes all prior or contemporaneous negotiations,
promises, covenants, agreements and representations of every nature whatsoever
with respect to the matters referred to in this Agreement, all of which have
become merged and finally integrated into this Agreement. Each of the parties
understands that in the event of any subsequent litigation, controversy or
dispute concerning any of the terms, conditions or provisions of this Agreement,
no party will be entitled to offer or introduce into evidence any oral promises
or oral agreements between the parties relating to the subject matter of this
Agreement not included or referred to herein and not reflected by a writing
included or referred to herein.

     

    29.         No Third
Party Beneficiaries. This
Agreement is solely for the benefit of Senior Creditor and its respective
successors and assigns and Junior Creditors and their respective successors and
assigns and is not intended to confer upon any Debtor or any other third party
any rights or benefits.

     

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

     

    31.         Section
Titles. The
section titles contained in this Agreement are and will be without substantive
meaning or content of any kind whatsoever and are not a part of the agreement
between the parties hereto.

     

    32.         No Strict
Construction. The
parties (directly and through their counsel) hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement will be construed as
if drafted jointly by the parties hereto and no presumption or burden of proof
will arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    33.         Further
Assurances. Each
party hereto will, at the expense of Debtors, and at any time and from time to
time, promptly execute and/or authorize and deliver all further instruments and
documents, and take all further action, that any other party hereto may
reasonably request in order to perfect or otherwise protect any right or
interest granted or purported to be granted hereby or to enable any party to
exercise and enforce its rights and remedies hereunder, including, without
limitation, appropriate amendments to financing statements authorized by any
Debtor in favor of any Junior Creditor in order to refer to this Agreement (but
this Agreement shall remain fully effective notwithstanding any failure to
execute any additional documents or instruments).

     

    34.         Expenses. Debtors
shall pay to Senior Creditor, upon demand, the amount of any and all reasonable
expenses, including, without limitation, the reasonable fees and expenses of
counsel for Senior Creditor, which Senior Creditor may incur in connection with
the exercise or enforcement of any of its rights or interests vis-à-vis any
Debtor or any Junior Creditor, and all such amounts shall constitute part of the
Senior Debt. Debtors shall pay to each Junior Creditors, upon demand, the amount
of any and all reasonable expenses, including, without limitation, the
reasonable fees and expenses of counsel for such Junior Creditor, which such
Junior Creditor may incur in connection with the exercise or enforcement of any
of its rights or interests vis-à-vis any Debtor or Senior Creditor, and all such
amounts shall constitute part of the Junior Debt.

     

    35.         Termination. This
Agreement shall terminate on the date that the Senior Creditor
Repayment.

     

    36.         Independent
Nature of Junior Creditors’ Obligations and Rights. The
obligations of each Junior Creditor hereunder are several and not joint with the
obligations of any other Junior Creditor, and no Junior Creditor shall be
responsible in any way for the performance or non-performance of the obligations
of any other Junior Creditor hereunder. Nothing contained herein, and no action
taken by any Junior Creditor pursuant hereto, shall be deemed to constitute the
Junior Creditors as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Junior Creditors are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement. Each Junior Creditor shall be
entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement, and it shall not be
necessary for any other Junior Creditor to be joined as an additional party in
any proceeding for such purpose.

     

    [SIGNATURES
BEGIN ON NEXT PAGE]

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, this Debt Subordination and Intercreditor Agreement has been
executed and delivered as of the date first written above

     

    
      
        	
                Senior
      Creditor:

              	
                ACF CGS, L.L.C., as
      Agent under the Senior Loan Agreement and as Senior
  Lender

              
	 
      	 
      	 
      
	 
      	
                By:

              	
                /s/ Eric Edidin

              
	 
      	 
      	
                Name:
      Eric Edidin

              
	 
      	 
      	
                Title:   Authorized
      Representative

              

      

    

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    

    
      
        
          
            
              
                
                  
                    
                      	 
      	
                              AEQUITAS
      CAPITAL MANAGEMENT, INC.

                            
	 
      	 
      
	 
      	
                              By:

                            	
                              /s/ Robert Jesenik

                            
	 
      	 
      	
                              Name:
      Robert Jesenik

                            
	 
      	 
      	
                              Title:  Chief
      Executive Officer

                            
	 
      	 
      	 
      
	 	
                              Notice
      Address: 5300 Meadows road, Suite 400

                              Lake
      Oswego, OR 97035

                            
	 	 
	 	
                              Attn.:
      Robert Jesenik, CEO

                              Fax:
      503-419-3530

                            

                    

                  

                

              

            

          

        

      

    

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	 
      	
                                      CapStone
      Investments

                                    
	 
      	 
      
	 
      	
                                      By:

                                    	
                                      /s/ Jason Diamond

                                    
	 
      	 
      	
                                      Name:
      Jason Diamond

                                    
	 
      	 
      	
                                      Title:  Partner

                                    
	 
      	 
      
	 	
                                      Notice
      Address: 12760 High Bluff Dri. #120

                                      San
      Diego, CA 92130

                                    
	 	 
	 	
                                      Attn.:
      Scott O’Sullivan

                                    
	 
      	 
      
	 
      	
                                      SHEFSKY
      & FROELICH

                                    
	 
      	 
      
	 
      	
                                      By:

                                    	
                                      /s/ Paul T. Jenson

                                    
	 
      	 
      	
                                      Name:
      Paul T. Jenson

                                    
	 
      	 
      	
                                      Title:  Shareholder

                                    
	 
      	 
      	 
      
	 	
                                      Notice
      Address: 111 E. Wacker Dr., Suite 2800

                                      Chicago,
      IL 60601

                                    
	 	 
	 	
                                      Attn.:
      Mitch Goldsmith

                                      Fax:
      (312)
275-7569

                                    

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    

    
      
        	
                NEXVU
      TECHNOLOGIES, LLC

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO

              
	 
      
	
                FNS
      2007, INC.

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO

              
	 
      
	
                CAPITAL
      GROWTH ACQUISITION, INC.

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO

              
	 
      
	
                GLOBAL
      CAPACITY DIRECT, LLC

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO

              
	 
      
	
                MAGENTA
      NETOLOGIC LIMITED

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO

              

      

    

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    

    
      
        	
                CAPITAL
      GROWTH SYSTEMS, INC. D/B/A

                GLOBAL
      CAPACITY

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO

              
	 
      
	
                GLOBAL
      CAPACITY GROUP, INC.

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO:

              
	 
      
	
                CENTREPATH,
      INC.

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO

              
	 
      
	
                20/20
      TECHNOLOGIES, INC.

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO

              
	 
      
	
                20/20
      TECHNOLOGIES I, LLC

              
	 
      
	
                By:

              	
                /s/ Patrick Shutt

              
	
                Name:

              	
                Patrick Shutt

              
	
                Title:

              	
                CEO

              

      

    

     

    
      
         

      

      
        28EXHIBIT
10.5

     

    SECURITIES
PURCHASE AGREEMENT

     

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

     

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

     

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

     

    ARTICLE
I.

    DEFINITIONS

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Company Counsel”
means Shefsky & Froelich, with offices located at 111 E. Wacker Drive, Suite
2800, Chicago, Illinois 60601.

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

    “July Debentures”
shall mean the Debentures.

     

    “July Purchase
Agreement” shall mean this Agreement.

     

    “July Purchasers”
shall mean the purchasers of July Debentures.

     

    “July Purchasers
Intercreditor Agreement” shall mean the intercreditor agreement in favor
of the Purchasers in the form attached hereto as Exhibit H, among the July
Purchasers and some or all of the holders of the Other Debentures.

     

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

     

    “July Warrants” shall
mean the Warrants.

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

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

     

    “November Senior Lender
Intercreditor Agreement” shall have the meaning set forth in “Senior
Lender Intercreditor Agreements.”

     

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

     

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

     

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

     

    “Principal Amount”
means, as to each Purchaser, the amounts set forth below such Purchaser’s
signature block on the signature pages hereto next to the heading “Principal
Amount,” in United States Dollars, which shall equal such Purchaser’s
Subscription Amount multiplied by 1.75.

     

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

     

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

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

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

     

    “VPP Debentures” shall
mean the debentures issuable by the Company pursuant to the VPP Purchase
Agreement.

     

    “VPP Warrants” shall
mean the warrants issuable to the purchasers of VPP Debentures.

     

    “VPP Purchase
Agreement” shall mean the purchase agreement pursuant to which certain of
the vendors to the Company are issued VPP Debentures and corresponding VPP
Warrants, permitting aggregate subscriptions for up to $2,500,000 of cash
subscriptions (representing aggregate OID principal amount of up to $1,625,000,
for cumulative principal amount of up to $4,125,000).

     

    “VPP Purchasers” shall
mean the purchasers of debentures issued pursuant to the VPP Purchase
Agreement.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    “VPP Senior Lender
Intercreditor Agreement” shall mean the intercreditor agreement among the
Senior Lender, the Company and its subsidiaries, and the VPP
Purchasers.

     

    “VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
New York City time to 4:02 p.m. New York City time); (b)  if the OTC
Bulletin Board is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then listed or quoted for trading on the
OTC Bulletin Board and if prices for the Common Stock are then reported in the
“Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers of a majority in interest of
the Securities then outstanding and reasonably acceptable to the Company, the
fees and expenses of which shall be paid by the Company.

     

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

     

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

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    ARTICLE
II.

    PURCHASE
AND SALE

     

    2.1           Closing.  On
the Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase: (i)  up to $7,000,000, in the
aggregate, in principal amount of the Debentures (with an aggregate Subscription
Amount of up to $4,000,000—the “First Tranche Subscription Amount,” with the
corresponding Debentures being the “First Tranche Debentures”); and (ii) no
later than five (5) business days following the delivery by the Company of the
Delay Draw Notice, up to $3,500,000, in the aggregate, in principal amount of
the Debentures (with an aggregate subscription amount of $2,000,000- the “Second
Tranche Subscription Amount,” with the corresponding Debentures being the
“Second Tranche Debentures”).  With respect to the First Tranche
Debentures: (i) $700,000 of the original principal amount (representing $400,000
of aggregate Subscription Amount) shall be issued to those purchasers of March
Debentures and November Debentures who execute the Consent, Waiver and Amendment
Agreement (and allocated among them pro rata as shown on Schedule 2.1 hereof),
and shall be issued to each such holder on delivery of a counterpart executed
copy by such holder of his, her or its counterpart copy of the Consent, Waiver
and Amendment Agreement; and (ii) $175,000 of the original principal amount
(representing $100,000 of aggregate Subscription Amount) shall be issued to
Aequitas Capital Management, Inc. (“Aequitas”) or its designee upon the initial
issuance of Debentures pursuant to this Agreement, and shall be credited against
$100,000 of monies owing by the Company to Aequitas. The Second Tranche
Debentures shall be substantially identical to the Debentures, except that the
issuance date shall be the date of funding of the Second Tranche Subscription
Amount by the applicable purchaser thereof.  Each Purchaser who has
funded cash toward the purchase of the initial $3,500,000 of cash funding (such
Purchasers being the “Cash Purchasers” and their respective percentages of the
cash funding being as to each the “Cash Purchaser Percentage”)shall deliver to
the Company within one business day following execution hereof via wire transfer
or a certified check, immediately available funds equal to its cash First
Tranche Subscription Amount and the Company shall deliver to each Purchaser its
respective Debenture and a Warrant, as determined pursuant to Section 2.2(a),
and the Company and each such Purchaser shall deliver the other items set forth
in Section 2.2 deliverable at the Closing.  Upon satisfaction of the
conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the
offices of Shefsky & Froelich Ltd. or such other location as the parties
shall mutually agree.  Attached hereto as Exhibit 2.1 is a schedule of
certain identified non-recurring revenue items that the Company and its
subsidiaries anticipate receiving on or before July 31, 2009 (the “Non-recurring
Receipts”).  To the extent that collections by the Company of
Non-recurring Receipts are less than $2,000,000 by August 14, 2009, then the
Company shall on that date send a notice to the Cash Purchasers (the “Delay Draw
Notice”) requiring each of them to fund up to their respective Cash Purchaser
Percentage of the shortfall of such collections within five (5) business days of
delivery of the Delay Draw Notice (the amount required of each Cash Purchaser
being the “Delay Draw Pro Rata Amount”).  Each Cash Purchaser shall be
required to deliver to the Company its Delay Draw Pro Rata Amount within five
(5) business days of receipt of the Delay Draw Notice by wire transfer or
certified check, and upon funding the Company shall issue an additional
Debenture in the principal amount of 1.75 times the amount funded by the Cash
Purchaser and a Warrant as determined in Section 2.2.  In the event
that a Cash Purchaser fails to timely deliver its Delay Draw Pro Rata Amount
(the “Unfunded Delay Draw”), the Company shall have the right to enforce the
funding obligation, and in addition, shall have the right to offer the Unfunded
Delay Draw to any other person or entity, and in the event it is funded by any
other person or entity before funding of the same (the “New Purchaser”) by the
defaulting Cash Purchaser (“Defaulting Purchaser”), then the New Purchaser shall
be issued the corresponding Debenture and Warrant, and in addition, the
Defaulting Purchaser shall forfeit to the New Purchaser its right to payment of
principal of its First Tranche Debenture in excess of the Subscription Amount
paid by the Defaulting Purchaser for its First Tranche Debenture (the “Forfeited
Principal Amount”).  The Company shall provide to the Cash Purchasers
other than the Defaulting Purchaser a 5 day right of first refusal to purchase
their pro rata shares (based on their respective Cash
Purchaser  Percentages) of the Unfunded Delay Draw (and Forfeited
Principal Amount) allocable to the Defaulting Purchaser, which notice shall be
delivered no later than two business days following the due date for payment by
the New Purchaser and shall allocate subscription rights thereto accordingly,
with the right thereafter to sell any unsubscribed for amount of the Unfunded
Delay Draw, to any person or entity, subject to compliance with the requirements
of Section 2.3(c) below.   In the event the Unfunded Delay Draw
is purchased by more than one person or entity, then the rights thereto (and
corresponding Forfeited Principal Amount) shall be allocated pro rata based upon
the respective amounts thereof purchased by the purchasers.  Each
Defaulting Purchaser agrees to cooperate fully with the Company to exchange its
First Tranche Debenture for a new substituted debenture that will be devoid of
the Forfeited Principal Amount (which will be assigned to the new purchaser(s)
with a substitute debenture substantially identical to the form of First Tranche
Debenture, except that the Forfeited Principal Amount shall not accrue interest
through the maturity date).  The Company further agrees that provided
it is permitted to do so by the Senior Lender, the Company will refund to each
purchaser (as a principal pay down) of a Second Tranche Debenture his, her or
its pro rata share (based on total principal amount of Second Tranche Debentures
outstanding) of any collections that the Company receives of Non-recurring
Receipts following the issuance of the Second Tranche
Debentures.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    2.2           Deliveries.

     

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

     

    (i)           this
Agreement duly executed by the Company;

     

    (ii)          a
Debenture with a principal amount equal to such Purchaser’s Subscription Amount
multiplied by 1.75, registered in the name of such Purchaser;

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (viii)        payment
of $100,000 toward an aggregate $300,000 Collateral Agent fee to Aequitas; in
addition, the Company agrees to pay an additional $100,000 on each of the 3
month anniversary and the 6 month anniversary of the Closing Date to satisfy the
Collateral Agent fee in full; this fee shall be in lieu of any other fees
payable pursuant to its existing consulting agreement with the
Company.  The Company has paid a $50,000 deposit to Aequitas prior to
the date of this Agreement, to be applied toward expenses incurred in connection
with the Transaction Documents, with any remainder as of the Closing Date to be
credited toward the initial $100,000 payment due on the Closing Date; in the
event that these expenses exceed $50,000, the excess will be billed by the
Collateral Agent to the Company.

     

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

     

    
      (i)           
this
Agreement duly executed by such Purchaser;

    

     

    (ii)           such
Purchaser’s cash First Tranche Subscription Amount by wire transfer to the
account as specified in writing by the Company

     

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

     

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

     

    (v)           the
VPP Senior Lender Intercreditor Agreement duly executed by such Purchaser.

     

    (c)          In
the event that the Delay Draw Notice is issued by the Company, promptly
following the Company’s receipt of subscription proceeds with respect to each
Second Tranche Subscription Amount (or Unfunded Delay Draw with respect to the
obligations of any Defaulting Purchaser), the Company shall deliver to the
purchaser of the Second Tranche Debenture the corresponding Second Tranche
Debenture Warrant and appropriate evidence of the rights to the Forfeited
Principal Amount (if applicable).  To the extent that the purchaser of
a Second Tranche Debenture is not a Purchaser from the initial Closing, then
such purchaser shall execute a counterpart copy of this Agreement and of the
Security Agreement, the July Senior Lender Intercreditor Agreement and the July
Intercreditor Agreement, as a condition precedent
to acquiring the Second Tranche Debenture.

     

    2.3          Closing
Conditions.

     

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

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

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

     

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

     

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

     

    (b)          The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met or waived by the
Purchasers subscribing for at least $2,000,000 of Cash Subscription
Amount:

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
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    (viii)     the
Company shall have delivered to Aequitas a 13 week cash flow model within 14
days prior to the Closing Date;

     

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

     

    (x)         the
$1,000,000 deposit provided by the Company to Senior Lender pursuant to the
Forbearance Agreement shall remain available for return to Company in accordance
with the terms and conditions set forth in the Senior Lender Second Amendment
and Waiver;

     

    (xi)        the
Company’s board of directors shall have approved the Transaction Documents, the
Vendor Payment Plan, the Company’s most recent 13 week cash model, the Company’s
most recent 18 month forecast and the amendments to the Senior Lender Loan
Agreement set forth in clause (xi) immediately above; and

     

    (xii)       The
Company shall have met any other conditions reasonably requested by
Aequitas.

     

    ARTICLE
III.

    REPRESENTATIONS
AND WARRANTIES

     

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

     

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

    
      
         

      

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

     

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

     

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

    
      
         

      

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

     

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

     

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

    
      
         

      

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

    
      
         

      

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

     

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

    
      
         

      

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

    
      
         

      

      
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    ARTICLE
IV.

    OTHER
AGREEMENTS OF THE PARTIES

     

    4.1           Transfer
Restrictions.

     

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

     

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

     

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

    
      
         

      

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

     

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

    
      
         

      

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

     

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

     

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

    
      
         

      

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

     

    4.3           Furnishing of Information;
Public Information.

     

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

     

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

    
      
         

      

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

    
      
         

      

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

     

    4.11         Reservation and Listing of
Securities.

     

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

    
      
         

      

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

     

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

     

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

     

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

     

    
      
         

      

      
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    4.12         Participation in Future
Financing.

     

    (a)           Other
than the Senior Debt, from the date hereof until the date that the Debentures
are no longer outstanding, upon any issuance by the Company or any of its
Subsidiaries of Common Stock, Common Stock Equivalents, Indebtedness (or a
combination of units hereof) (a “Subsequent
Financing”), the Purchasers and holders of the Other Debentures,
collectively (pro rata based on their respective subscription amounts for the
Debentures and Other Debentures) shall have the right to participate in an
amount of the Subsequent Financing equal to 30% of the Subsequent Financing (the
“Participation
Maximum”) on the same terms, conditions and price provided for in the
Subsequent Financing.  For purposes hereof, the “Debentures” shall be
the debentures issued by the Company pursuant to its Securities Purchase
Agreement in July, 2009 and the “Other Debentures” shall mean the debentures
issued by the Company pursuant to its Securities Purchase Agreement dated as of
March 11, 2008 (and the exchange and reissuance thereof as amended and restated
debentures) and its Securities Purchase Agreement dated as of November 19,
2008.

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

    4.13         Subsequent Equity
Sales.

     

    (a)           From
the date hereof until 90 days after the Effective Date, neither the Company nor
any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents,
except for the issuance of the July Debentures and associated warrants called
for in the July Debenture Purchase Agreement and the VPP Debentures and
associated warrants called for in the VPP Debentures Purchase
Agreement.  Notwithstanding anything to the contrary contained in the
Debentures or Warrants held by the undersigned, the issuance of the July
Debentures and associated warrants and any adjustment to the conversion price of
the July Debentures or the conversion price of any of the Other Debentures held
by purchasers of the July Debentures pursuant to the terms of the July Purchase
Agreement, shall constitute an “Exempt Issuance” for purposes of the July
Debentures and the Other Debentures.

     

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

    
      
         

      

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

     

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

     

    4.14         Equal Treatment of
Purchasers.  Except as noted below, no consideration (including
any modification of any Transaction Document) shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents. Further, the Company shall not
make any payment of principal or interest on the Debentures in amounts which are
disproportionate to the respective principal amounts outstanding on the
Debentures at any applicable time unless approved by the Holders of at least 67%
of the outstanding principal amount of the Debentures then
outstanding.  Notwithstanding anything to the contrary contained
herein, the Company shall be permitted: (i) to fund redemptions of the Second
Tranche Debentures to the extent permitted under Section 2.2 hereof; and (ii)
with the consent of the Collateral Agent, to repurchase in the aggregate not
greater than $250,000 of principal amount of debentures issued by the Company on
such terms and conditions they deem necessary and proper from any person or
entity.  Each First Tranche Debenture purchaser’s “Conversion Price
Reduction Amount” shall be an amount equal to five (5) times the Cash
Subscription Amount paid by such Holder for the Holder’s First Tranche
Debenture(s), and each such Holder shall have the right to lower the conversion
price exercisable by such Holder to fifteen cents per share (subject to
adjustment in the same proportionate manner as all other Conversion Price
adjustments hereunder), subject to a maximum aggregate principal amount of Other
Debentures for which this applies equal to the Conversion Price Reduction
Amount.  For example if a Holder funded $1,000,000 of Cash
Subscription Amount for the First Tranche Debenture, and held a March Debenture
with a principal amount of $8,000,000, that Holder would be entitled to convert
up to $5,000,000 of the principal amount of the March Debenture at fifteen cents
per share (subject to adjustment for conversion price
adjustments).  In addition, if by September 30, 2009 the Company has
not caused pay down to Holders of the principal amount of their outstanding
Second Tranche Debentures of an amount equal to their original Cash Subscription
Amounts for their Second Tranche Debentures, then the conversion price for each
of:(i) those Second Tranche Debentures,  (ii) the First Tranche
Debentures issued to those Holders; and (iii) the exercise price of the July
Warrants issued to those Holders, shall be reduced to fifteen cents per share
(subject to adjustment for conversion price adjustments as provided
herein).  Except for the adjustments in conversion price benefitting
the Holders of Second Tranche Debentures (and the adjustments to their July
Debentures, their July Warrants and their Other Debentures set forth in this
Section 4.14), none of the adjustments to the exercise prices of the Debentures
or Other Debentures per the terms of this Section 4.14 shall adjust in any
manner the number of shares purchasable under or the exercise price of the
Debentures, the Other Debentures, the Warrants or the warrants issued to the
holders of the Other Debentures.

    
      
         

      

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

     

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

    
      
         

      

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

     

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

    
      
         

      

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

     

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

     

    4.21         Insurance. The Company agrees to
use its best efforts to purchase a key man insurance policy on the life of
Patrick C. Shutt in an amount of not less than $15,000,000 within 90 days
following the date of this Agreement or such later date as is mutually agreeable
to the Collateral Agent, and to maintain such policy or a replacement policy in
force and effect for so long as the Debentures remain outstanding.

     

    4.22         Affirmative
Covenants.  The Company agrees to provide to Aequitas or the
successor Collateral Agent named under the Security Agreement the following
items at the following times (or the next business day if such date falls on a
holiday), until the Debentures have been retired (unless specifically noted to
the contrary below or waived by the Collateral Agent):

     

    (a)           A
weekly cash model by the close of business each Tuesday, that incorporates cash
receipts, weekly dashboard and sales pipeline report, to be provided for the
term of the Debentures unless otherwise agreed to between Aequitas and the
Company.

     

    (b)           Monthly
internally prepared financial statements by the 15th
business day of the following month, together with a report on the variances to
budget and the monthly pipeline report.

    
      
         

      

      
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    (c)           Quarterly
updated 18 month model using the format mutually agreed to between the Company
and Aequitas, together with a report on variances between the model and the one
prepared for the prior quarter, to be delivered no later than 15 business days
following the end of each calendar quarter.

     

    (d)           An
updated cost reduction and reorganization plan, no later than 20 days following
the Closing Date.

     

    (e)           A
weekly update of the following: (i) accounts payable disbursements relating to
the Vendor Payment Plan budget for the prior two week period; and (ii) no later
than each of September 15, 2009, November 10, 2009 and January 5, 2010, the
Company shall provide an updated Vendor Payment Plan budget describing payments
for the next 8 week period, all in form and substance reasonably satisfactory to
Collateral Agent.

    

    The
Company also agrees that for so long as the Debentures are outstanding, Aequitas
or its designee shall have observation rights (to attend in person or by
telephonic conference call) for the weekly cash meetings and the right to attend
all meetings of the Company’s board of directors, in person or by telephonic
conference call.

     

    ARTICLE
V.

    MISCELLANEOUS

     

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

     

    5.2         Fees and
Expenses.  At the Closing and on the three and the six month
anniversaries thereafter, the Company has agreed to pay to Aequitas those fees
set forth in Section 2.2(a)(viii). The Company shall deliver to each Purchaser,
prior to the Closing, a completed and executed copy of the Closing Statement
attached hereto as Annex
A.  Except as expressly set forth in the Transaction Documents
to the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.  The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.

     

    5.3         Entire
Agreement.  The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.

    
      
         

      

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        43

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

    
      
         

      

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

     

    [SIGNATURE
PAGES FOLLOW]

    
      
         

      

      
        46

        
          

        

      

      
         

      

    

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

    

    
      
        
          
            	
                    CAPITAL
      GROWTH SYSTEMS, INC.

                  	 
      	
                    Address
      for Notice:

                  
	 
      	 
      	 
      
	 
      	 
      	
                    Attention
      Chief Executive Officer

                  
	 
      	 
      	
                    200
      S. Wacker, Suite 1650

                  
	 
      	 
      	
                    Chicago,
      Illinois 60606

                  
	 
      	 
      	 
      
	 
      	 
      	
                    Facsimile:
      312-673-2422

                  
	
                    By:

                  	
                    /s/ Patrick Shutt

                  	 
      	 
      
	 
      	
                    Name:  Patrick
      Shutt

                  	 
      	 
      
	 
      	
                    Title:  CEO

                  	 
      	 
      
	
                    With
      a copy to (which shall not constitute notice):

                  	 
      	 
      
	
                    Shefsky
      & Froelich Ltd.

                  	 
      	 
      
	
                    111
      E. Wacker Dr., Suite 2800

                  	 
      	 
      
	
                    Chicago,
      Illinois 60601

                  	 
      	 
      
	
                    Facsimile:
      312-275-7569

                  	 
      	 
      

          

        

      

    

    

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

    
      
         

      

      
        47

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