Document:

EXHIBIT
10.12

     

    VPP
SECURITIES PURCHASE AGREEMENT

     

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

     

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

     

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

     

    ARTICLE
I.

    DEFINITIONS

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

    “VPP Debentures” shall
mean the Debentures.

     

    “VPP Warrants” shall
mean the Warrants.

     

    “VPP Purchase
Agreement” shall this Agreement.

     

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

     

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

    
      
         

      

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

     

    ARTICLE
II.

    PURCHASE
AND SALE

     

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

     

    2.2           Deliveries.

     

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

     

     
(i)            this
Agreement duly executed by the Company;

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

     

    
      	
               
      

            	
              (i)

            	
               
      this Agreement duly executed by such
Purchaser;

            

    

     

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

     

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

     

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

     

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

     

    (c)          .
C losing Conditions.

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
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    ARTICLE
III.

    REPRESENTATIONS
AND WARRANTIES

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

    
      
         

      

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

     

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

    
      
         

      

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

     

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

    
      
         

      

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

     

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

    
      
         

      

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

      ARTICLE
IV.

      OTHER
AGREEMENTS OF THE PARTIES

       

      4.1          Transfer
Restrictions.

       

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

      
        
           

        

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

       

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

       

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

      
        
           

        

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

       

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

      
        
           

        

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

       

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

       

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

       

      4.3          Furnishing of Information;
Public Information.

       

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

      
        
           

        

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

       

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

      
        
           

        

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

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

      
        
           

        

        
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      4.11        Reservation and Listing of
Securities.

       

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

       

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

       

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

       

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

      
        
           

        

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

       

      4.12        Participation in Future
Financing.

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

       

      4.13        Subsequent Equity
Sales.

       

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

       

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

       

      
        
           

        

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

       

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

       

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

      
        
           

        

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

       

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

       

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

      
        
           

        

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

      
        
           

        

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

       

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

       

      4.21         Other
Agreement(s).  Intentionally
Deleted.

       

      ARTICLE
V.

      MISCELLANEOUS

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

      
        
           

        

        
          40

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

      
        
           

        

        
          41

          
            

          

        

        
           

        

      

       

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

       

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

       

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

       

      [SIGNATURE
PAGES FOLLOW]

      
        
           

        

        
          42

          
            

          

        

        
           

        

      

      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

                        	 
      	 
      

                

              

            

          

        

      

      

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

       

      
        
           

        

        
          43EXHIBIT
10.13

     

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

     

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

     

    
      
        
          	
                  Original
      Issue Date:  July ___, 2009

                	
                  $

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

                	 
      

        

      

    

    

    VPP
ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE

    DUE
NOVEMBER 30, 2011

     

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

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
1.       
      Definitions.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Equity
Conditions” means, during the period in question, (a) the Company shall have
duly honored all conversions and redemptions scheduled to occur or occurring by
virtue of one or more Notices of Conversion of the Holder, if any, (b) the
Company shall have paid all liquidated damages and other amounts owing to the
Holder in respect of this Debenture, (c)(i) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares of Common Stock issuable pursuant to the
Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to
the Transaction Documents may be resold pursuant to Rule 144 without volume or
manner-of-sale restrictions as determined by the counsel to the Company pursuant
to a written opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading
Market and all of the shares issuable pursuant to the Transaction Documents are
listed or quoted for trading on such Trading Market (and the Company believes,
in good faith, that trading of the Common Stock on a Trading Market will
continue uninterrupted for the foreseeable future), (e) there is a sufficient
number of authorized but unissued and otherwise unreserved shares of Common
Stock for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (f) there is no existing Event of Default or no existing event which,
with the passage of time or the giving of notice, would constitute an Event of
Default, (g) the issuance of the shares in question (or, in the case of a
Quarterly Redemption, the shares issuable upon conversion in full of the
Quarterly Redemption Amount to the Holder would not violate the limitations set
forth in Section 4(c) herein, (h) there has been no public announcement of a
pending or proposed Fundamental Transaction or Change of Control Transaction
that has not been consummated, (i) the Holder is not in possession of any
information provided by the Company that constitutes, or may constitute,
material non-public information and (j) for each Trading Day in a period of 20
consecutive Trading Days prior to the applicable date in question, the daily
dollar trading volume for the Common Stock on the principal Trading Market
exceeds $75,000 per Trading Day.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Permitted
Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the
Indebtedness existing on the Original Issue Date and set forth on Schedule
3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase
money indebtedness of up to $250,000, in the aggregate, incurred in connection
with the acquisition of capital assets and lease obligations with respect to
newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator
Debenture issued to the Administrator, and (f) Magenta employee notes in the
amount of approximately $87,000.

     

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

     

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

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

    “Quarterly
Redemption Date” means January 1, April 1, July 1 and October 1, commencing
immediately upon July 1, 2009 and terminating upon the full redemption of the
Aggregate Quarterly Redemption Amount plus liquidated damages and any other
amounts then owing to the Holder in respect of this Debenture.

     

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

     

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

     

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

     

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

     

    “67%
Majority” shall mean holders of at least 67% of the outstanding principal amount
of the Debentures.

     

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

     

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

     

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

     

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

     

    “VPP
Intercreditor Agreement” means the Archer VPP Purchasers Intercreditor
Agreement, dated as of July __, 2009, among the Company, its subsidiaries, ACF
CGS, LLC as agent for itself and other senior lenders, the Collateral Agent and
the Purchasers of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.

     

      
        

      

    

    
      	
              1

            	
              ((A*B)-A)/10,
      where A = the initial Subscription Amount and B =
  1.65.

            

    

    
      	
              2

            	
              (A*B)-A.

            

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

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

     

    Section
2.              Interest and
Prepayment.

     

    The
Company acknowledges and agrees that this Debenture was issued at an original
issue discount. Other than default interest, no interest payments shall be made
on this Debenture. Except as otherwise set forth in this Debenture, the Company
may not prepay any portion of the principal amount of this Debenture without the
prior written consent of the Holder.

     

    Section
3.              Registration of Transfers
and Exchanges.

     

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

     

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

     

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

     

    Section
4.              Conversion.

     

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

     

    
      
         

      

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

     

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

     

    
      
         

      

      
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    (d)          Mechanics of
Conversion.

     

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

     

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

     

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

     

    
      
         

      

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

     

    
      
         

      

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

     

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

     

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

     

    
      
         

      

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

     

    Section
5.             Certain
Adjustments.

     

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

     

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

     

    
      
         

      

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

     

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

     

    
      
         

      

      
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    (e)           Fundamental
Transaction.  If, at any time while this Debenture is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one transaction or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (iv) the Company effects any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then, upon any subsequent
conversion of this Debenture, the Holder shall have the right to receive, for
each Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction, the same
kind and amount of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of 1 share of
Common Stock (the “Alternate Consideration”).  For purposes of any
such conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of 1 share of Common Stock
in such Fundamental Transaction, and the Company shall apportion the Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any conversion of this Debenture following such Fundamental
Transaction.  To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new debenture consistent with the
foregoing provisions and evidencing the Holder’s right to convert such debenture
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 5(e)
and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

     

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

     

    (g)           Notice to the
Holder.

     

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

     

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

     

    
      
         

      

      
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    Section
6.             Quarterly
Redemption.

     

    (a)           Quarterly
Redemption.  On each Quarterly Redemption Date, the Company
shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The
Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be
paid in cash; provided, however, as to any Quarterly Redemption and upon 30
Trading Days’ prior written irrevocable notice (the “Quarterly Redemption
Notice”), in lieu of a cash redemption payment the Company may elect to pay all
or part of a Quarterly Redemption Amount in Conversion Shares based on a
conversion price equal to the lesser of (i) the then Conversion Price and (ii)
90% of the average of the VWAPs for the 10 consecutive Trading Days ending on
the Trading Day that is immediately prior to the applicable Quarterly Redemption
Date (subject to adjustment for any stock dividend, stock split, stock
combination or other similar event affecting the Common Stock during such 10
Trading Day period) (the price calculated during the 10 Trading Day period
immediately prior to the Quarterly Redemption Date, the “Quarterly Conversion
Price” and such 10 Trading Day period, the “Quarterly Conversion Period”);
provided, further, that the Company may not pay the Quarterly Redemption Amount
in Conversion Shares unless (y) from the date the Holder receives the duly
delivered Quarterly Redemption Notice through and until the date such Quarterly
Redemption is paid in full, the Equity Conditions have been satisfied, unless
waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior
to such Quarterly Conversion Period (but not more than 5 Trading Days prior to
the commencement of the Quarterly Conversion Period), the Company shall have
delivered to the Holder’s account with The Depository Trust Company a number of
shares of Common Stock to be applied against such Quarterly Redemption Amount
equal to the quotient of (x) the applicable Quarterly Redemption Amount divided
by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the
10 VWAPs during the period ending on the 3rd Trading Day immediately prior to
the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion
Shares”).  The Holder may convert, pursuant to Section 4(a), any
principal amount of this Debenture subject to a Quarterly Redemption at any time
prior to the date that the Quarterly Redemption Amount, plus liquidated damages
and any other amounts then owing to the Holder are due and paid in
full.  The Holder shall have the right to designate how any
conversions effected during the applicable Quarterly Conversion Period until the
date the Quarterly Redemption Amount is paid in full shall be applied (i.e.,
against the principal amount of this Debenture scheduled to be redeemed on such
Quarterly Redemption Date, against future Quarterly Redemption Amounts or
against the principal amount of this Debenture then outstanding that is not
subject to a Quarterly Redemption);  provided, if no such written
designation is made in the applicable Notice of Conversion, the Company shall
request that the Holder provide such written designation prior to the applicable
Quarterly Redemption Date; provided, further, that in the event no such written
designation is ever received from the Holder prior to such applicable Quarterly
Redemption Date, any such conversion shall be applied against the principal
amount of this Debenture then outstanding.  The Company covenants and
agrees that it will honor all Notices of Conversion tendered up until such
amounts are paid in full.  The Company’s determination to pay a
Quarterly Redemption in cash, shares of Common Stock or a combination thereof
shall be applied ratably to all of the holders of the then outstanding
Debentures based on their (or their predecessor’s) initial purchases of
Debentures pursuant to the Purchase Agreement.  At any time the
Company delivers a notice to the Holder of its election to pay the Quarterly
Redemption Amount in shares of Common Stock, and, if a Registration Statement is
then effective, the Company shall file a prospectus supplement pursuant to Rule
424 disclosing such election.   If at any time prior to the
Senior Creditor Repayment (as defined in the Archer Intercreditor Agreement) the
Company is permitted to make cash payments of a Quarterly Redemption Amount,
such permissible cash payments  pursuant to this Section shall be made
ratably to all of the holders of the then outstanding Debentures and all of the
holders of the then outstanding debentures issued pursuant to the March Purchase
Agreement and of the November Purchase Agreement based on their (or their
predecessor’s) initial purchases of debentures pursuant to the Purchase
Agreement and the March Purchase Agreement and November Purchase Agreement,
respectively, and notwithstanding anything herein to the contrary, prior to the
Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount
payable in cash as permitted pursuant to Section 2(c)(iii) of the Archer
Intercreditor Agreement that is due on January 1, 2010, such Quarterly
Redemption payment shall be due and paid on the same date the Company pays the
Archer Purchasers pursuant to Section 2(c)(v) of the Archer Loan Agreement and
(y) with respect to any Quarterly Redemption Amount payable in cash as permitted
pursuant to Section 2(c)(iv) of the Archer Intercreditor Agreement, such
Quarterly Redemption payment shall be due and paid on each January 30, April 30,
July 30 and October 30 (instead of January 1, April 1, July 1 and October 1,
respectively). Notwithstanding anything to the contrary contained herein, if at
any time prior to the Senior Creditor Repayment (as defined in the VPP
Intercreditor Agreement) the Company is prohibited from paying, and the Holder
is prohibited from receiving, cash payments of a Quarterly Redemption Amount
pursuant to this Section, the Company shall be required to elect to make such
payment in shares of Common Stock in accordance with the terms
hereof.  If the Company does not meet the Equity Conditions in
connection with such Quarterly Redemption Amount described in the preceding
sentence, at the option of the Holder upon written notice to the Company, the
Holder shall either waive such Equity Conditions or such amounts otherwise
payable in cash shall continue to remain outstanding.  For the
avoidance of doubt, in the event that the Holder does not elect to take Common
Stock if the Equity Conditions are not met as to a particular Quarterly
Redemption Date as described in the preceding sentence, then the Quarterly
Redemption called for with respect to such Quarterly Redemption Date shall be
due on maturity of this Debenture and failure to pay the same on the applicable
Quarterly Redemption Date shall not constitute an Event of Default
hereunder.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    (b)           Redemption
Procedure.  The payment of a Quarterly Redemption shall be
payable on the Quarterly Redemption Date.  If any portion of the
payment pursuant to a Quarterly Redemption shall not be paid by the Company by
the applicable due date, interest shall accrue thereon at an interest rate equal
to the lesser of 12% per annum or the maximum rate permitted by applicable law
until such amount is paid in full; provided, however, that no such interest
shall be charged if the Company is unable to make any portion of such payment
solely as a result of a restriction set forth in the VPP Intercreditor
Agreement.  Notwithstanding anything herein contained to the contrary,
if any portion of the Quarterly Redemption Amount remains unpaid after such
date, the Holder may elect, by written notice to the Company given at any time
thereafter, to invalidate such Quarterly Redemption, ab initio, and, the Company
shall have no further right to exercise such Quarterly
Redemption.  The Holder may elect to convert the outstanding principal
amount of the Debenture pursuant to Section 4 prior to actual payment in cash
for any redemption under this Section 6 by the delivery of a Notice of
Conversion to the Company.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    Section
7.             Negative
Covenants.

     

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

     

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

     

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

     

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

     

    (d)           repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its Common Stock or Common Stock Equivalents other
than as to (i) the Conversion Shares or Warrant Shares as permitted or required
under the Transaction Documents and (ii) repurchases of Common Stock or Common
Stock Equivalents of departing officers and directors of the Company, provided
that such repurchases shall not exceed an aggregate of $100,000 for all officers
and directors during the term of this Debenture;

     

    (e)           other
than the Senior Debt and July Debentures, repay, repurchase or offer to repay,
repurchase or otherwise acquire any Indebtedness, other than the Other
Debentures if on a pro-rata basis, other than regularly scheduled principal and
interest payments as such terms are in effect as of the Original Issue Date,
provided that such payments shall not be permitted if, at such time, or after
giving effect to such payment, any Event of Default exists or
occurs;

     

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

     

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

     

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

     

    
      
         

      

      
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    Section
8.             Events of
Default.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

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

     

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

     

    (ix)           the
Company does not meet the current public information requirements under Rule 144
in respect of the Underlying Shares;

     

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

     

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

     

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

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    Section
9.             Miscellaneous.

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    [SIGNATURE
PAGES FOLLOW]

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

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

     

    
      
        
          	 
      	
                  CAPITAL
      GROWTH SYSTEMS, INC.

                
	 
      	 
      
	 
      	
                  By:

                	 
      
	 
      	 
      	
                    
      Patrick C. Shutt

                
	 
      	 
      	
                    
      Chief Executive Officer

                

        

      

    

    

    
      
        	 
      	
                Facsimile:

              	
                (312)
      673-2422

              
	 
      	 
      	
                (for
      delivery of Notices)

              

      

    

     

    
      
         

      

      
        22

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